Publication - Research and analysis

Supporting the economic, social and environmental sustainability of the UK's marine sectors

This research considers barriers to sustainable marine economy growth in Scotland and the rest of the UK with particular regard to cross sectoral barriers and market failures.

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113 page PDF

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Contents
Supporting the economic, social and environmental sustainability of the UK's marine sectors
4 Constraints and challenges for marine sectors

113 page PDF

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4 Constraints and challenges for marine sectors

Introduction

4.1 This chapter sets out the main constraints and challenges facing the marine sectors across the UK. It draws on the findings of the literature review, and in-depth fieldwork with stakeholders and key informants from the consultation and workshops. It focuses on the issues identified by stakeholders as being of primary consideration, and is not intended as a comprehensive analysis of all challenges and constraints facing the sector. Rather, it provides a summary of challenges and constraints, with emphasis on the issues identified by stakeholders and policymakers as being of primary consideration.

4.2 The analysis considers a series of overarching and cross-cutting challenges and constraints for the marine sector as a whole, before examining sector-specific challenges. It makes a distinction between long-term structural challenges, and more transitory issues, such as political uncertainty.

Overarching challenges and cross-cutting constraints - Main challenges and constraints

Spatial variations in sectoral significance

4.3 The research highlighted a number of transitory issues concerning integration of marine sectors. Through this work – and also in previous studies undertaken by ekosgen, Imani Development and others – integration between marine sectors and indeed other land-based sectors where appropriate is a long-term opportunity to realise sustainable growth. For example, a number of industry players and strategic actors are currently considering the scope for co-location and clustering of marine economy activity across sectors, such as integrated marine energy and aquaculture operations. The MAXiMAR Marine Economy Science and Innovation Audit[105] identified an opportunity to develop a cluster model across aquaculture, marine biotechnology and marine renewables (wave and tidal) in Scotland. Previous research for the SIA had identified conflict between the differing user groups, and findings from consultations for this research confirmed this competition for marine space and resource. Such a model would address a co-ordination failure across three key marine sectors for the UK. This would create the conditions to maximise innovation and support sector growth. A key feature would be joint working, collaboration and knowledge exchange, leading to the exploration of co-location and joint venture opportunities. However there are often conflicts between different marine users in the same seaspace, with few resolutions. An example is the conflict between fisheries and offshore wind in terms of using the same marine space.[106]

4.4 Some sector-specific marine facilities have conditionality on their planning permission or operation, which prevents co-location of other marine uses, thereby limiting the degree of collaboration with other sectors. For example, at the European Marine Energy Centre (EMEC) in Orkney, only renewable energy activity is permitted. Some of the port infrastructure in Kirkwall is hypothecated to renewables and cannot be co-opted by other marine sectors, though in principle it still benefits them by creating more capacity overall.

4.5 Conversely, stakeholders raised concern that the weighting of marine sector interests in devolved administrations are not fully understood at UK level. There is a worry therefore that conflating sectors in future interventions and support mechanisms would not recognise the specific challenges and requirements of individual sectors, thus disadvantaging them. Recent trends in Government and Enterprise Agency support at the UK and devolved national administration level has seen a shift in emphasis from a sectoral policy focus to one of opportunities. There is a danger that quite distinct issues for each sector – and especially for commercial capture fishing and aquaculture, where they are significant and separate industries for Scotland, but proportionally far less so in England – become blurred and are not dealt with in the most effective or appropriate manner. For example, there is genuine concern amongst stakeholders in Scotland that aquaculture is subsumed in wider debates and discussions regarding fisheries – there is a perception that the proportional scale and significance of Scottish aquaculture is not recognised at the UK level, in part because it is a comparatively smaller sector outside of Scotland.

4.6 It may also be an issue within sectors. In marine renewable energy, evidence suggests that emerging energy sources such as wave and tidal are at a disadvantage in relation to offshore wind. Support mechanisms such as Contracts for Difference (CfD) arguably favour off-shore wind and make no specific provision for wave and tidal energy.

4.7 There was broad agreement across stakeholders that a one-size support will not fit all. There should be parity across each of the UK’s constituent countries and sectors in future support priority decisions. The sectors in each country should have equitable access to support and that it should take account of the mix of uses and users. This would avoid a conflation of sectors and devolved administrative geographies.

Impact of geography

4.8 The geography of the UK and the impact that it has on the marine economy presents some significant structural challenges. The regions and locations where marine sector activity is concentrated are often remote and rural, with poor transport links and limited access to skills. For example, many of the UK’s fishing ports such as Lerwick, Brixham, Portavogie and Fishguard are in largely rural areas, and some distance from major urban areas. This geography and topography can place constraints on supporting infrastructure, and increase time and distance to market as well as to supply chain and ancillary service providers.

4.9 For example, many commercial capture fishing operations are located in peripheral regions, particularly inshore fisheries. Consequently, they can be a considerable distance from processing facilities and the market. Similarly, many marine tourism destinations are in rural and often remote areas, there is a twin challenge of attracting visitors to the destination, and also providing the necessary infrastructure to ensure a positive visitor experience and ensuring no negative impact on the communities.

Data and intelligence

4.10 Fully understanding the marine environment and the impacts of different activities is crucial for managing it sustainably and ensuring that we maximise the economic and social potential. This requires robust, credible and up-to-date evidence but there is a perception that data and data collection is currently limited and not fit for purpose which is a clear market failure impacting on sustainable growth. Some current EMFF resources have been dedicated to improving monitoring and data but it is not considered sufficient to inform future management of marine resources and environments and so is a constraint.

4.11 Firstly, this lack of data may be regarding relative economic performance of sectors – such as international trade, where specific sector data is often subsumed in to or combined with other sectors (e.g. fisheries and aquaculture), or only partly available (e.g. Scottish salmon exports versus exports for UK aquaculture as a whole). Secondly, there may also be a challenge where robust data on environmental and natural resource factors is lacking, e.g. marine quality, stock levels, impacts/rate of climate change, or impact of marine activity on marine life.[107] Without this data it is not possible to effectively plan and manage sustainable growth across marine sectors and so it is a market failure.

4.12 It results in a lack of understanding and clarity about the marine environment, and relative performance of sectors. This could result in unnecessary environmental damage and/or, lack of growth in the sector because the risk of environmental impact and mitigating actions are not fully understood. Consultees agreed that a lack of understanding can also lead to tension between marine user groups, such as tourism and leisure activity or that of aquaculture, for example. Both may potentially impact the quality and therefore the productivity and growth potential of the other, but the extent to which this happens is often not clear. It can result in user groups and stakeholders lobbying and potentially influencing policy with limited or imperfect information. Ultimately, this leads to policy and legislative decision-making that is only partly informed.

4.13 There has, as a result been changes in the monitoring landscape: commercial capture fishing, for example, has an interest in demonstrating that it has a track record of fishing a particular marine area without negative consequences. In aquaculture, publishing of monitoring data is seen as vital in maintaining transparency and growth of the sector. Across all sectors, good quality data and intelligence will mean that there can be sector growth that is adequately balanced with environmental impact and that risk of negative environmental impacts can be managed and mitigated.

Structural workforce, employment and community challenges

4.14 Marine sectors are often key sources of employment in remote and coastal communities. Whilst there are, for example, a number of fishing communities throughout the UK where the share of employment from the sector is very low, such as Dartmouth or Scarborough, there are many other communities, particularly in the Highlands and Islands of Scotland, that are largely dependent on marine sector economic activity due to their fragile socio-economic nature. Sectors such as aquaculture or marine renewable energy can provide employment, including high value jobs in rural areas. For example, the Scottish Salmon Company is a major employer in parts of Argyll & Bute, Highland and the Western Isles, in remote locations such as Cairndow, Raasay and Plocrapol. They can also be high-volume employers, either in relative or absolute terms. In many coastal communities, tourism (and therefore marine-related tourism) is a significant employer. Though the overall effect of marine sector operations on communities depends on a number of complex and inter-related factors, they can often have a disproportionately large impact on the communities and locations in which they are rooted even where absolute employment is low, underlining the importance of supporting their long-term viability and sustainability as part of the inclusive growth agenda.

4.15 A key challenge faced by marine economy employers is recruiting and retaining the skills they need, e.g. engineering or higher-level scientific skills, particularly when they compete with other sectors. As identified by consultees through this research, and also in related research[108], jobs in the marine economy, such as fishing, aquaculture and seafood processing are considered to be less attractive than those in other sectors, which can make it difficult to encourage people to take up employment in them. There is broad agreement amongst stakeholders that people prefer to work in other sectors such as (land-based) tourism, hospitality or the public sector rather than in most sectors of the marine economy. They may also choose sectors where the terms and conditions seem particularly attractive such as oil & gas, which presents a particular challenge for other sectors in North East Scotland.

4.16 The issue of attracting and retaining a skilled workforce is a market failure that could impact on sector growth if employers are not able to sustain an adequate workforce to maintain and expand operations in the UK. This is a challenge identified through the research with stakeholders, and supported by findings from other research.[109] However the solutions are complex and span a range inter-connecting issues and policy areas. Illustrating this, as well as competing with other sectors for staff, marine sector employers can find it difficult to attract people to work in remote areas where infrastructure and access to services and amenities is limited. A key issue is a lack of affordable housing.[110] This has led some aquaculture employers to develop their own housing, in partnership with communities, e.g. in Ullapool[111], and on the Isle of Rum.[112] Other solutions such as shift working patterns akin to those employed in the oil & gas sector, e.g. two weeks on, two weeks off, are also being used by some aquaculture employers, though this has implications for community integration and sustainability.

4.17 In a number of sectors, the reliance on a non-domestic workforce means that there can be a disconnect between sectors and the communities that support them. Across fisheries, aquaculture and seafood processing, EU and non-EU nationals comprise significant proportions of the UK’s workforce. For example, over 27% of Scotland’s fishing workforce is non UK, with over 19% being non-EEA workers.[113] However, the proportion of Northern Ireland’s fleet workforce that is non-UK is much higher: approximately 40% of jobs on Northern Ireland-registered vessels were filled by non-UK citizens.[114]

4.18 In Seafood processing, over 40% of employees are non-UK, with the majority coming from the EU. This is most acute in North East Scotland, where 70% are from the EU.[115] It is clear that immigration policy will have an impact, and if a sizeable proportion of the workforce are not from the UK, then the benefits to the economy and to local communities may be diminished. This is a significant structural challenge.

4.19 Subsequently, this creates further challenges for employers gaining access to sector entrants in an environment where the local labour supply may not exist. Though this is an issue that has arisen as a result of Brexit in the immediate term, it is arguable that the challenge of ensuring labour supply – domestic or otherwise – for the longer-term sustainability of businesses is a critical one.

Environment and natural resources

4.20 There are two aspects to environmental constraints and failures in the marine economy, which can be conceptualised as a circular loop. The first is how the changing marine environment and quality impacts on the sectors, and the second is how the sectors impact on the marine environment. The marine environment sets the initial parameters; industry and other groups (along with other forms of human activity) have an impact on the environment, whether directly or indirectly, which ultimately alters the parameters of the natural environment. This is a critical and long-term issue. If economic operators in the marine environment do not address the evident negative externalities, then negative climate change impacts will be perpetuated, and future marine economic activity will be limited.

4.21 In terms of the changes in the marine environment the most critical structural challenge is climate change. Climate change is causing water temperatures to rise along with changing currents and maritime meteorological conditions.[116] These changes in aquatic conditions will potentially have profound impacts. The risk of disease and pathogens may increase as a result of a rise in water temperature and other factors. There will be a shift in species distribution meaning that the UK may lose some species, or they will shift north, and new species will move in to our waters. The extent of this is a huge unknown but there is no doubt that there will be a significant knock-on effect for commercial capture fishing and aquaculture, and what species may be caught or farmed and so may for example, be a threat to Scotland’s salmon farming industry and shellfish farming in Northern Ireland.

4.22 A change in marine conditions may also lead to changes in the best locations for some of marine activities and the supply chain. For example, the location of aquaculture sites; the ability for capture fisheries to fish in different areas and sea conditions, and the vessels and equipment required to do so; the price and acceptability of transporting fresh produce by air transport.

4.23 The impact of climate change on the UK marine environment is a clear and significant market failure. If the sectors affected, and indeed the wider UK and global economy, do not respond positively, then this would have serious implications for the sustainability of the marine economy and the sectors that comprise it, for example fisheries and aquaculture.

4.24 As well as affecting the productivity and quality of the marine environment as a natural resource, falling water quality will impact on the attractiveness of the marine environment. This is a particular challenge in Northern Ireland where it was reported by stakeholders that the degradation in water quality now means that some of the locally produced shellfish must be treated before going to market. This negative externality from others sectors and activities is a serious market failure impacting on the marine economy. Further degradation would result in produce being categorised as not fit for human consumption and so there would not be a viable product for the market. This is also an issue in England, where stakeholders reported that water discharges from sewage and floodwater is polluting areas that could potentially be used for aquaculture production.

4.25 Although there are undoubted challenges, climate change may offer some new opportunities, such as the potential to cultivate new species – though this would be dependent on market demand, particularly in domestic markets. It may also enable different marine leisure activities, whereby UK residents shift to domestic leisure consumption – this could revitalise some coastal communities if flying for traditional beach holidays becomes constrained. However the number of overseas tourists to the UK may fall for the same reason. Additionally, the scope for marine leisure activities may be negatively impacted due to predicted climate change impacts on the UK, e.g. warmer temperatures, but wetter and more extreme weather events.[117]

4.26 As well as being impacted by changes in the marine environment, marine economy sectors also impact on the environment. As discussed in the previous section (paragraphs 3.10-3.13), there is a lack of comprehensive, good quality data that gives a full and up to date picture of the nature and extent of these impacts. The challenge here is how to understand and monitor and respond to them appropriately, mitigating risk but at the same time, ensuring that the sectors have the opportunity to grow sustainably.

4.27 Marine litter is increasingly recognised as an issue in the UK and worldwide. In Northern Ireland, litter in ports and harbours – including dumping of old vessels rather than decommissioning – is causing environmental damage and blight. Stakeholders in Wales noted that because of the nature of tidal and sea currents and wider meteorological conditions, the country’s coastline has a significant sea litter problem, in common with much of the UK’s west coast. This is a major challenge for all marine industries – whether due to the impact on marine wildlife, or on the appearance of the marine environments; one consultee noted that:

“…tourists want coastal areas and waters to look pristine”.

4.28 The current high quality of coastal waters means that UK seafood produce can sometimes command a premium price, but this competitive advantage is at risk if the challenges and market failures are not addressed and water quality deteriorates.

Infrastructure across the marine economy

4.29 A challenge identified by stakeholders is that many harbours, ports and marinas, and other coastal infrastructure are in disrepair and require modernisation and refurbishment. This is a market failure in terms of ensuring adequate port infrastructure to support the sustainable growth of marine sectors that rely on UK ports and harbours. This is a result of limited access to finance in some cases, and co-ordination failures between different interest or user groups in others – i.e. significant costs or barriers to co-ordination or collaboration on port development, but not single group able to make a financially viable port without the contribution of other users. The development plans for Stornoway port are a good example of where such a co-ordination failure is being addressed to position the port to serve and target multiple sectors through its redevelopment.[118]

4.30 It is a particular issue for smaller harbours and marinas: marine investment activity has appeared to have consolidated around strategically important ports, e.g. for fishing or on major transport routes for example new fisheries facilities in Peterhead and Brixham. There is evidence to suggest that investment has in part been influenced by (or has at least followed) the uptake and geographical distribution of fishing quotas, with some stakeholders arguing that other, smaller ports miss out on investment as a result. Wales is a prime example as the majority of its catch tends to be of non-quota species.

4.31 Similarly, cruise tourism hubs such as Portsmouth[119] and Southampton[120] have attracted significant investment from cruise companies in recent years but investment has been more limited outside of these areas. Elsewhere, investment plans to attract a larger market share of cruise tourism are often driven by larger ports themselves, e.g. at Invergordon.[121] There are similar plans for key ports in Northern Ireland, targeting commercial capture fishing, but these are still under discussion.

4.32 These factors have led to there being a historic lack of investment and innovation in smaller ports, so negatively impacting on marine sectors and employers that would or do use them. These businesses may have to use alternative ports, incur additional costs or be less productive and profitable. It is however widely acknowledged that modernisation, and the necessary diversification of activity required for viable operations, is difficult for many ports due to geography, configuration, geological and marine considerations, available space and so forth. To meet the needs of a range of marine sectors and activity, ports need to be multifunctional, whereas private or ring-fenced sectoral funding may be focused on singular functions or sectors. Equally, there may be reasons to have spatial distribution of different activities across port infrastructure: coordination of interests and business cases can be difficult.

“The challenge is that different ports are different sizes, and have to contend with different types of geographies and ownership – so it’s hard to generalise about their challenges, they are all unique models.”

4.33 There are some examples of good integration that helps to improve port infrastructure. Pittenweem and Kirkcudbright in Scotland, or Whitby and Southwold in England, for example, balance fishing interests with helping to support vibrant tourism sectors. The mix of users and uses needs to be carefully considered and managed for example, ensuring tourists can safely access what are often working ports with associated risks (cranes, equipment, heavy loads, trucks requiring access), and that commercial users such as fishing boats are not restricted or inconvenienced. The positive impacts often outweigh the challenges – upgraded safety features, improved access to port-side space as well as to the water, and ports and harbours that are opened up to tourists seeking ‘authentic’ areas and locally caught products, thereby increasing local spend and better distribution of impacts.

4.34 Small ports will often lack the necessary on-site and supporting infrastructure for easy access to market which constrains the growth of marine industries such as fishing. This is a challenge for the large number of smaller ports across the UK, and is highlighted as a particular challenge in Wales, Northern Ireland, the west coast of Scotland and some parts of England, e.g. East Anglia. Northern Ireland has an added complication in that it has a geologically ‘soft’ coastline[122] meaning that hard infrastructure at one point in the coastline can accelerate erosion at another point. This is a negative externality which may justify additional research to fully understand potential impacts, or investment support to avoid knock-on effects.

4.35 However, a strong environmental lobby in some parts of the UK (e.g. Northern Ireland); and political sensitivity around the location of operations such as processing can be a barrier to port renewal and diversification. Concerns around displacement as a result of regenerating port infrastructure compounds this.

4.36 Nevertheless, there are some good examples of activities to revive smaller ports. For example, the Renaissance of the East Anglia Fisheries (REAF) project aims to revitalise East Anglia's fishing industry. The partnership of local authorities and industry is currently developing a long-term strategy to enable the local fishing industry and coastal communities to optimise the economic benefit of the area’s fisheries.[123] Many stakeholders believe that there is a public good argument, as well as public safety considerations for driving investment in smaller ports. For example through regional growth funds, as in Poole through the Dorset Growth Deal[124], Workington through the Cumbria Growth Deal[125], and Ardrossan as part of the Ayrshire Growth Deal[126], a number of ports and marinas are undergoing redevelopment and regeneration. These investments are addressing market failure through positive externalities – the wider benefits to communities and local economies around small ports have not always factored in the decision-making of investors and port operators regarding investment and facilities upgrading.

Financial challenges across the marine economy

4.37 Across marine sectors and uses, access to finance was reported as a key challenge that can constrain growth of businesses and sectors. Many stakeholders reported that businesses can find it difficult to secure investment for example to buy and upgrade equipment, and invest in new technologies and staff development and training. The outcome is that they are not as efficient and productive as they could be and so risk losing competitive advantage. If there is a critical mass of underinvestment in a sector, then there is likely to be a loss of market share and a loss of global competitiveness.

4.38 A key issue is that the return on investment in marine sectors is often realised in the longer term and is perceived as riskier than banks allow for. There is also a lack of understanding of marine sectors on the part of lenders, for example how assets are viewed and how that relates to risk assessment (an information failure).

4.39 Methods of financing depend on industry structure, and in turn shape its development. In inshore fishing, succession in the sub-sector will depend on whether the upcoming generations of would-be owner-operators can finance their boats. There are a small number of examples of good practice in local funding models for fishermen to secure investment. For example, the Western Isles have developed a Fisheries Investment Scheme funded by the council (Comhairle nan Eilean Siar) and supported by the Western Isles Fishermen's Association, which works with a bank partner (in this case Royal Bank of Scotland) to provide loans to finance fishing boats. Other fishermen's associations can provide co-operative financing to younger fishers but there is consensus amongst stakeholders that structured support as in the Western Isles is desirable to ensure succession of competitive inshore fishing fleets. However, if there is no viable way to do this on a larger scale, then there is a clear market failure in providing the necessary investment to help grow the sector.

4.40 The increased drive for traceability and security of supply means that processors have an interest in financing and owning boats in the fishing fleet. This vertically integrated model may increasingly reflect the type of structure seen in salmon farming. In shellfish, a co-operative model has emerged for processing and marketing, but differences in scale of member companies may mask the degree of constraint of financing on the smaller operators. In offshore renewables, the financing model is radically different with large funders and dedicated public-financed innovation funds seeking to capture a share of (or all of) the global market.

4.41 The issue of investment and access to finance is discussed in more detail in subsequent sections that focus on specific sub-sectors.

Political constraints

4.42 It is arguable that the key political constraints on the marine economy are a result of issues around Brexit, and therefore transitory rather than being a market failure. It potentially presents challenges around the workforce and exporting processes, with serious implications.

4.43 As discussed, for many marine economy-related sectors, there is a high proportion of non-UK workers, many from the EU. Uncertainty around Brexit has already meant that the flow of EU workers in to the UK has slowed and some are leaving, impacting marine sectors as well as other parts of the UK economy. This is a transitory challenge as well as a more structural one. Withdrawal from the EU without a deal, or in a ‘Hard’ Brexit scenario would have negative implications for EU nationals working in the UK’s marine sectors, with EU nationals potentially becoming unable to work and live in the UK due to barriers surrounding work visas and residency.

4.44 Access to markets is another important challenge facing marine sectors, with issues around export markets, tariff and non-tariff barriers. Whilst this is not a market failure, these barriers can have a negative impact on the time taken to get produce to markets which is critical in the case of perishable and time-sensitive seafood, since the value of these products is time limited.[127] These barriers are dealt with in specific relation to fishing, aquaculture and seafood processing in subsequent sections.

Co-ordination failures and shared access to resources

4.45 Stakeholders from all four UK countries and across all user groups pointed to the increasing competition for marine space as a constraint for sustainable growth of the marine economy. Achieving an optimal balance of uses is challenging, since competing uses in the same seaspace often lead to friction. This can be complicated by the impact of different uses not being fully understood through a lack of research and data, as noted above (paragraphs 3.10-3.13). Decisions are therefore being taken by policymakers, strategic planners, etc. in the absence of reliable and comprehensive intelligence.

4.46 There is a balance that must be struck across social, environmental and economic demands to ensure a sustainable, thriving marine economy in the UK. Safeguarding the marine environment was generally considered paramount but as discussed, gaining a clear and balanced understanding was considered crucial. It is also recognised that the marine environment can provide economic and social benefits and it is important that all decisions makers and stakeholders have clear information to inform policy and strategy. Another consideration is how different users impact on each other for example, enhancing or diminishing the marine tourism visitor experience, impacts of one type of activity (renewable energy) on access to prime fishing sites and so forth.

Commercial capture fishing - Sector overview

4.47 As demonstrated in Chapter 2, a key feature of the Commercial Capture Fishing sector in the UK is the diversity of the industry across the four countries in terms of the nature of the fleet and the species. The industry in each has specific needs, and country-specific support and solutions are required to support the development of Commercial Capture Fishing across the UK. Addressing the productivity challenge will help to enhance the Commercial capture fishing sector’s growth, and secure greater market share, and therefore must be a focus for the industry in future.

4.48 There has been some modernisation and consolidation in the Commercial Capture Fishing industry in recent years, particularly in demersal and white fish catching. The majority of the UK’s catch is offshore[128], and the majority of offshore fishing boat ownership is concentrated in a relatively small number of companies, compared to inshore fishing.

4.49 Stakeholders believe that the consolidation of the fleet means that smaller scale benefits, which would otherwise be significant for smaller coastal communities, are lost because economic impacts are concentrated in a smaller number of locations and in a smaller number of businesses. Given the importance of fishing in many rural and remote coastal communities, there is a danger that a more consolidated industry means that some communities will lose the benefits of investment or financing, market development and subsequent impacts. This is something that is starting to come to the fore in industry and public debate as processes around Brexit continue, where uncertainty and (at the very least) changing markets means that those with least resilience to change may be less able to adapt.

4.50 Vertical integration with processors or co-operative organisations is one option to manage change, and new markets, for example in Asia, may be accessible if the potentially high costs and risks of transition can be overcome. Figure 3.1 provides an indication of the factors that influence and constrain growth of Commercial capture fishing in the UK. The subsequent sections explore these issues in more detail.

Figure 3.1: At-a-glance assessment of sector constraints for commercial capture fishing
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - - - - -
England - - - - - - -
Northern Ireland - - - - - - - - + -
Scotland - - - - - - - -
Wales - - - - - - + -

Key

++ Strong growth; widespread distribution of impacts

+ Weak or no growth; weak distribution of impacts

- Weak negative growth; poor distribution of impacts

-- Substantial negative growth; very poor impact distribution

N/A No data available

Human resource and access to labour and skills

4.51 Attracting workers to Commercial Capture Fishing is challenging largely due to perceptions around difficult working conditions, the physical demands of the job and income levels. It is particularly challenging to attract young people to the sector. In conjunction with an ageing workforce[129], this presents a considerable constraint on the sector.

4.52 As a result many fishing fleets rely on EU and increasingly, international workers. This presents a particular challenge for the mainly pelagic and shellfish fisheries fleets and vessels on the west coast of Britain[130] and in Northern Ireland, as well as for inshore fishing, in that there are restrictions on where non-EU fishers can work (not within 12 nautical miles of the coast). It puts the east coast and offshore (demersal) fleet at a distinct advantage.[131] Because the west coast is largely enclosed, then it is mostly not ‘offshore’ fishing like on East coast, where there is a bigger allowance for overseas workers on offshore boats under immigration law.[132] In a situation where there may be fewer EU nationals working in the sector in future, but with no loosening of rules on non-EU nationals, this would have the effect of constraining a sector reliant on immigration channels to supplement its workforce.

4.53 Where there is no available workforce (local or otherwise) to crew boats, there is anecdotal evidence that boats are being sold, therefore reducing the capacity of the sector, and the economic benefit for some fishing communities. This weakens coastal economies, and serves to further concentrate economic benefit in a smaller number of companies and locations.

Environment and natural resources

4.54 Ensuring the sustainability of supply has been a longstanding issue for Commercial Capture Fishing. Past experiences, such as overfishing of cod in the 1980s demonstrated the need for a healthy fish population, and the impacts, such as sector recession, if this is not well managed. Whilst stock levels of some species have recovered in recent years, climate change is bringing a new set of challenges. There is uncertainty around the scale and speed of change, but effects span increased incidence of harmful algal blooms (HABs) and disease events, shift in fish stock patterns, and the viability of fish stocks all brought on by change in water temperature, aquatic conditions and currents.

4.55 There is a market failure here in terms of imperfect information. A number of stakeholders identified that a lack of understanding on the impacts of climate change, as well as limited understanding of the marine space, is hampering efforts to plan and respond effectively. Monitoring is improving, but there is still a perception that there is insufficient data to fully understand climate change and the impact on specific fish stocks, and the viability of fish stock more generally meaning that policy and decisions are based on incomplete or partial data:

“The North Sea should be the best understood in the world, but it is still a hotch-potch.”

“Current data [for Northern Ireland] is focused on quotas for capture fisheries and aquaculture for statistics. There needs to be cross-sectoral and consistent data gathering to feed…an ecosystem baseline.”

4.56 As a result, there is a risk that fisheries stocks cannot be managed effectively, negatively impacting both the productivity of the sectors, and the sustainability of natural resources. There is a consensus across all stakeholders that much better data and understanding is required in order to enable the industry to proactively address climate change issues, as well as more effectively manage fisheries. This requires an industry and pan-government agency approach that is driven not just by compliance, but by industry and environmental need. This was raised as a particular challenge for Northern Ireland fisheries.

4.57 Another challenge presented by climate change is increasingly erratic and adverse weather events. This can prevent boats going to sea, reducing the window of opportunity for sailing. This places pressure on the fishing fleet to catch sufficient fish in less time overall:

“Fishing activities can be restricted by weather conditions, and we are increasingly experiencing lots of prolonged spells of adverse weather.”

“Due to [increasing] storm frequency and intensity, would a boat [be able to] go to sea in 20 years?”

4.58 In addition to environmental challenges, there is evidence of pressure on inshore fishing in some areas. Industry stakeholders in Wales noted that whilst stocks in Welsh waters are generally well-managed and high-quality with a potential to revive some local fisheries, in some areas, such as in North Wales, stocks are under pressure from over-fishing and increased prevalence and efficiency of equipment:

“Things have definitely got worse…in North Wales. There is less fish, but better, and more, fishing gear.”

4.59 The distribution of fishing quotas has been contested within the UK home nations and across inshore and offshore sectors, on the basis that some areas are perceived to be missing out on investment. For example, some stakeholders in Scotland reported that due to the majority of fishing quotas being taken up in the North East of Scotland, ports on the Firth of Clyde, South East Scotland and elsewhere do not then invest in port and harbour infrastructure. Further, the concentration and degree of foreign ownership of the fleet and quotas have been under scrutiny, due the added negative impact this has on the (lack of) distribution of economic benefits in local economies. Much of this is subject to change through Brexit, with the UK white paper on fisheries[133] setting out initial policy direction.

Infrastructure to support the commercial capture fishing sector

4.60 There are long-term structural infrastructure constraints that can limit access to markets for fishing businesses. These market failures are largely a function of geography: fisheries and the ports at which they are landed are far removed from the markets they serve, and in some cases from the downstream supply chain, including wholesale retail and primary processing. In Wales and the East of England, the distance from ports to motorways and major transportation hubs is a barrier to direct access.

4.61 Ports serving the UK’s west coast fisheries, and also those ports serving the smaller, pelagic fleet elsewhere in the UK also have a number of infrastructure challenges. A lack of shared port facilities such as gear to land catch from some boats, or adequate storage facilities (access to cold storage is dealt with in relation to Seafood processing, below, paragraph 4.118 onwards) means that landing catch at certain ports can be problematic. This appears to be a particular challenge in Wales with Welsh stakeholders reporting that many boats use Milford Haven to land catch despite being registered elsewhere, incurring additional cost. The lack of transport infrastructure in South West and West Wales also means that some catch is landed in South West England instead.

4.62 The market failure here is one of public goods, and businesses unable or unwilling to invest in shared infrastructure. This results in a lack of landing capacity and capability, which clearly impacts on the distribution of economic impacts for Commercial Capture Fishing. Stakeholders report that not addressing the issue of landing capability and access to market will limit opportunities for smaller ports and fishing businesses to access markets, and also to take advantage of different future catch quota arrangements.

4.63 An entirely different infrastructure challenge faces Shetland, a major centre for landing offshore fishing catch from the North Sea and North East Atlantic. Whilst there is good capacity and high-quality facilities on Shetland which are currently being expanded through new fish markets at Scalloway and Lerwick, there is a reliance on ferry capacity and frequency of sailings to transport landed fish from Shetland to mainland UK. The routes to the North Isles is also highly subsidised, meaning that other operators will not run the route on a fully commercial basis, further restricting capacity. This also affects other areas where there is a dependency on finite ferry capacity as part of the logistics chain. It is a serious constraint to the growth of more remote fisheries ports, limiting routes to market for time-sensitive goods. Addressing this market failure would require additional public subsidy to increase ferry capacity for freight.

Financial support for fisheries

4.64 Access to finance is a major constraint to some parts of the Commercial Capture Fishing sector (e.g. smaller pelagic fleet), particularly for potential new entrants who struggle to buy quota. This market failure is a result of information asymmetry between lenders and the businesses and entrepreneurs. The wider financial outlay for new market entrants, across cost operation, boats and associated kit, licences, can be prohibitive, requiring finance that is not consistently available. These costs can be difficult to offset against the variable income derived from landings. This is compounded by difficulties in accessing finance from banks and lenders. Where banks do lend to the sector, it is often limited to 50% of the total investment; however, banks will generally not recognise fishing quotas as an asset, so do not take it in to account when considering loan applications.

4.65 As a result, there is a lack of required investment in the sector, which means that equipment and vessels are not replaced or updated. Also, new entrants are deterred from joining the sector. This ultimately serves to constrain the productivity and competitiveness of the sector.

4.66 There have been some attempts to address this through community loan funds, but the geographical provision of these financing models for inshore vessels is poor, and some have fallen foul of State Aid rules. For example, a loan guarantee scheme was established in the Western Isles to support start-up fishing businesses, or those wishing to expand. It is similar to approaches used elsewhere, such as Norway. However, State Aid rules led to a change in the fund, meaning it was not as effective in supporting small fishing businesses. Similarly, Shetland Islands Council established a loan scheme as part of its investment fund, providing loan funding to match bank or commercial lender investment. Whilst this facility still exists, lending activity has declined in recent years, though reasons for this are unclear.

Technology, equipment and innovation

4.67 As noted above, there is an increasing need to monitor the marine environment and fish species stocks. Monitoring is important for compliance on catch and discards but can also help to improve efficiency of operations and understand the impacts on the environment. This is to ensure the long-term sustainability of stocks and inform real-time information of catch. This latter point is important to enable greater vertical integration with Seafood processing (see below).

4.68 However, there is a challenge in reconciling increasing need and growing support for auditable and real-time information systems, and concerns from fishing businesses over surveillance. In short, this is an information failure, which impacts on the ability to accurately respond to and manage market demand for catch (so that it remains largely supply-driven), and stock management is done on the basis of imperfect or impartial information. Some stakeholders suggested that negative historical experiences of information sharing and monitoring on the part of fishing businesses have led to a higher degree of resistance than would otherwise be the case.

4.69 There is also a market failure in terms of the rate of innovation adoption: the uncertainty or lack of knowledge around new technologies, and the investment commitment required to trial and deploy means that businesses are reluctant to adopt new kit. Technological innovation in fisheries has been developing with support from organisations such as MMO and Fisheries Innovation Scotland (FiS), however some stakeholders in England and Scotland consider that the adoption of innovation in fisheries lags other sectors. They report that more could be done to support more widespread trialling of new and innovative fishing gear. Some fishermen appear to be reluctant to trial new gear at sea, as they are concerned that it does not meet legislative requirements. This acts as a ‘bottleneck’ in terms of innovation adoption, and thus impacts on the productivity and efficiency of the sector.

4.70 The precautionary principle, and a reluctance to ‘implement, monitor and manage’ with relation to fish stocks is constraining the identification of more efficient and selective means of fishing, and the implementation of new technologies at an earlier stage. Establishing trial licences or zones would help to address this issue and lead to more rapid identification of innovations and so more efficient and sustainable fishing methods that reduce the impact on the marine environment and seabed, as well as reducing by-catch.

4.71 A challenge facing fisheries in some areas is an ageing fleet, which limits efficiency and productivity. Despite some evidence of new investment in Scotland and England in particular, a considerable proportion of the fisheries fleet, particularly in Northern Ireland and Wales is old, inefficient and polluting. At the UK level, over half of the fleet (56%) entered service in 1990 or earlier; three in ten vessels entered service before 1980. In Northern Ireland around two thirds of the Northern Irish fleet entered service in 1990 or earlier and almost four in ten vessels entered service before 1980 demonstrating how acute this issue is here.[134] Evidence from consultations indicated that for smaller businesses, there is a market failure in terms of lack of finance to invest. In some cases a lack of clear business succession means that current vessel owners, as they reach retirement (given the older average age of age of the fleet workforce, as discussed above), are less inclined to self-fund investment in new or upgraded vessels and equipment, and corroborating MMO data on vessel age this is a particular challenge in Northern Ireland. As a consequence the fleet is less efficient, which negatively impacts on the productivity of the sector.

4.72 On the supply side, the ability of domestic boat production to meet demand is also a factor in the age of the fleet. Evidence from the consultations indicates that whilst orders for new vessels are increasing[135], builders such as Parkol in Whitby and Macduff in Aberdeenshire are struggling to meet demand. This results in the fleet operating with ageing and inefficient vessels and equipment, which constrains capacity and productivity. Also, there is effectively no capacity to build vessels over 24 metres domestically, and all production is currently sourced overseas, potentially representing lost opportunity and economic value to the fishing vessel building industry – though this assumes that the comparative advantage that other countries have is not such that any manufacturing gains would not be outweighed by the cost of production for a domestic vessel.

Community relationships

4.73 A recent study[136] in Scotland has supported long-held beliefs that inshore fishing is intimately connected with the social capital and sense of community in many coastal areas. This can in turn translate to positive associations for marine tourism – e.g. ‘authenticity’. However, this relationship or ‘value’ depends in turn on the degree of involvement local communities have in the fishing activity itself. As noted above, in recent years the industry has often employed migrant and overseas labour. This is potentially causing a disconnect between the communities that support, and are supported by, the Commercial capture fishing industry, if that labour is not then a part of the communities. Such a disconnect can affect the supply of local labour to the Commercial capture fishing industry as discussed above. This negatively impacts on the viability and ultimately the resilience of the sector. In turn, where fishing declines in local areas, this weakens the distribution of impacts.

Aquaculture - Sector overview

4.74 There is an increased demand globally for protein, of which fish and seafood is a key component. This is being driven by global population growth and rising affluence in developing countries. A key element of meeting this demand is increasing sustainable production through aquaculture. The growth aspirations of the aquaculture sector across the UK, and indeed elsewhere globally, reflect this increasing demand.

4.75 However, as identified in Chapter 2, there is a growth challenge. Aquaculture faces a number of inter-related challenges and market failures that serve to constrain the sector, and prevent it realising the growth opportunities presented to it. As Figure 3.2 shows, there are a range of factors that serve to constrain growth in the UK’s aquaculture sector. These are set out in more detail in the following sections.

Figure 3.2: At-a-glance assessment of sector constraints for aquaculture
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - - - - - - - -
England - - - - - - - - - -
Northern Ireland - - - - - - + -
Scotland - - - + - - - - - -
Wales - - - - - - - - - -

Key

++ Strong growth; widespread distribution of impacts

+ Weak or no growth; weak distribution of impacts

- Weak negative growth; poor distribution of impacts

-- Substantial negative growth; very poor impact distribution

N/A No data available

Market Failure: Human resource and access to labour and skills

4.76 There is a significant labour market failure in the aquaculture sector. Across the UK, the challenge is a labour shortage, at least in part due to the profile of the sector. Aquaculture as a career option has a lower profile than some other sectors and as identified through consultations and other related research[137], is often perceived to be less attractive as an employment or career option. This makes recruiting people difficult.

4.77 Workforce challenges in England, Wales and Northern Ireland are predominantly concerned with labour supply (manpower). Specific skills shortages and needs, as well as labour supply, are a key issue for aquaculture companies in Scotland, due to the scale and nature of the sector.[138]

4.78 To counter the issue of attractiveness and labour supply shortages, an aquaculture company in England has introduced a staff rotation system as part of its expansion plan. As well as addressing labour supply challenges, it is designed to facilitate skills transfer by allowing staff to experience different roles across the company.

4.79 The growth, and growth aspirations of the aquaculture sector are driving increased demand for skills in production activity although there is also unmet demand in other areas such as processing and the wider supply chain. For example, to increase production levels, companies need to address issues regarding fish welfare and environmental stewardship. Reflecting the importance of this, the aquaculture sector needs people who are skilled in up-to-date approaches to fish husbandry, fish health, feeding and biology. However, these skills are in short supply and employers face gaps.

4.80 Producers are looking at how technology can be applied to improve and grow production which is creating a need for more technical skills. The need for technologically and digitally skilled staff is particularly acute in finfish as a result of expansion, automation and new models of production. Whilst shellfish producers in the UK tend to be lower-tech, there is an increasing prevalence of technological solutions to increase production – and therefore an increasing demand for technological skills. Demand for skills is only expected to increase, with more specialist and niche skills required as the industry develops and adopts more sophisticated systems and innovative techniques and technology. These are lacking in the current workforce and will be increasingly important for the future sustainable development of the sector.

4.81 There is a shortage of other skills required in aquaculture such as engineering. These skills are also in high demand elsewhere in the economy so aquaculture is competing with many other sectors to recruit engineers. This adds to the pressure, particularly in areas where aquaculture is competing for staff with higher value, and higher paying sectors such as oil and gas.

4.82 Sector growth and consolidation in Scotland, particularly in finfish, means that leadership, organisational management and wider business skills are in high demand as businesses have become larger and more complex. This skills shortage means that effective business management to drive growth can be a constraint.

4.83 For the shellfish sector, the fact that a high proportion of the businesses are micro and often owner-occupied can make succession planning difficult, with a lack of new people entering the sector to take over the running of businesses. As such, the constraint amongst shellfish businesses is one of business continuity.

4.84 Aquaculture companies face skills shortages so as well as competing with other sectors for staff, businesses within the sector are competing with each other within the sector. This leads to churn, with companies competing for the incumbent workforce in a tight sectoral labour market. A further consequence is that businesses are unable to fill skills gaps: if businesses don’t have the workforce to fuel growth, then they are unable to ensure that production can meet demand, and thus cannot benefit from increased demand. It was identified through consultations that aquaculture companies could raise production to meet demand but integral to this will be an adequate and sustainable skills supply.

4.85 The UK’s aquaculture-related education is internationally renowned, but there is an inadequate supply of courses and qualifications that are specific to aquaculture – both finfish and shellfish – across the UK. This is a constraint: the ability of education and training providers to produce skilled and qualified entrants for the aquaculture sector is an important factor in meeting the skills challenges set out above.

4.86 To tackle this skills supply challenge, many aquaculture companies have developed internal training programmes and qualifications. However, these are not transferable, or consistent across companies: training is not accredited, so training from one company is often not accepted at another. If an employee moves to a new company, training is repeated. This results in duplication of effort, and thus inefficiencies, and so compounds the issue of skills as a constraint on growth by negatively impacting on the productivity of the aquaculture workforce.

Environment and natural resources

4.87 There are two aspects to consider here: the extent to which environmental conditions impact on the economic growth of the aquaculture sector; and how the sector impacts on the marine environment.

4.88 In terms of how environmental conditions impact on the sector, the main challenge is undoubtedly climate change. Biological conditions in the UK’s water are changing and this is likely to continue for the foreseeable future. Climate change is impacting and will continue to impact on the species that can be farmed in different parts of the UK. Water quality impacts on the bivalve sectors in Northern Ireland and Wales in particular, as mentioned previously at paragraph 3.24. Although ocean warming may create opportunities for aquaculture to diversify into new species, evidence from research consultations identified that the aquaculture sector may be faced with the challenge of switching production to different species (capital immobility), for which there is a market. If the sector does not respond to the consequences of climatic changes efficiently and effectively, it will be at risk.

4.89 Management of disease and biosecurity of fish stock remains a significant challenge for aquaculture production, and a constraint to growth. The industry is facing issues of sea lice, algal gill disease and other pathogens, particularly finfish production in Scotland, and it is anticipated that climate change will exacerbate these. Issues of fish health impact on the security of supply; this impacts on the abilities of companies to grow by undermining certainty of and confidence in supply, and exacerbating annual variations that arise due to the industry’s dependency on biophysical conditions. It also negatively impacts on the quality of supply in a sector where premium quality and provenance are key competitive advantages for the UK. It threatens the position of the product as a high quality one that attracts a premium price. Fish health, welfare and good environmental stewardship are therefore key drivers for innovation. Whilst there is a significant amount of research being undertaken in this area by the Scottish Association for Marine Science (SAMS), Scottish Aquaculture Innovation Centre (SAIC) and others, solutions currently being developed and trialled are not yet proven in terms of effectiveness and market readiness.

4.90 Welfare and environmental stewardship, and its impact on the marine environment are important considerations for aquaculture, e.g. interaction with wild species. Negative externalities such as pathogen or parasite transmission, or environmental degradation arising from farm waste or pollution is a key focus for businesses, strategic bodies and communities.[139] Alongside the negative environmental impacts, these externalities can constrain growth by reducing production yields, damaging the premium brand reputation and increasing the mortality rate on farms. Failure to address this critical market failure will negatively impact on the ability of companies to farm in current locations, and create barriers to gaining consent for relocation or expansion into new sites. This therefore poses a significant threat to production and growth capabilities.

4.91 There can also be challenges where aquaculture shares space with other marine uses, for example marine tourism. An example is where leisure boat trips pass through aquaculture production sites, impacting on operations. This was cited in the research as a problem in both South West England and Scotland. This therefore constrains production growth, to the extent that mitigation measures or policy decisions are required to overcome the challenge.

4.92 The pressure on the marine environment as an asset from a range of user groups and coupled with the growth potential of aquaculture, means that the sector must consider expanding in to new sites. Currently the majority of production sites are in near-shore or inshore waters but availability of new inshore sites is constrained. There is a degree of geographical immobility from a market failure point of view: businesses are not readily able to relocate. Access to new trial sites in other locations is limited, either by management systems for other types of use, or environmental designations.

4.93 In response to the lack of in-shore sites, the sector is increasingly looking to more exposed locations further off-shore. The environment and conditions in these more exposed sites may drive up production costs and will certainly mean that processes and equipment will need to be adapted to cope with the conditions, for example wave movement, deeper water and wind. If aquaculture sites are located further off-shore, they may be closer to wild fisheries and there are concerns about the implications of interaction of farmed and wild fish and possible transfer of disease and pathogens.

Infrastructure challenges for aquaculture

4.94 Whilst this report identifies a number of infrastructure challenges common across marine sectors, the research did not identify any additional infrastructure challenges specific to aquaculture.

Financial constraints in the aquaculture sector

4.95 There are a number of structural market failures related to access to finance for aquaculture companies in the UK and so can constrain investment in innovation and expansion.

4.96 Where a UK aquaculture operation is part of a much larger international company, the UK-based operation can access finance from the parent company or group and can access non-UK sources (i.e. internal financing). This happens most frequently in larger finfish (salmon) production companies in Scotland, but Scottish-based operations must then demonstrate competitiveness within an international portfolio of production.

4.97 However, these types of financing options are not available to smaller, shellfish producers in the UK. One proposed solution reported by consultees in England was to pool aquaculture expansion or start-up projects. By creating a critical mass of activity, this would help to secure investment by establishing a larger pool of business capital, and de-risking the investment for investors. There may be some merit in this: the consolidation through a co-operative approach of shellfish producers in Scotland has served to strengthen the shellfish aquaculture industry there. Pooling of resources through collaborative approaches would also enable an otherwise disparate sector of small and micro businesses to better access market opportunities in a co-ordinated manner. It also helps to reduce risk for potential investors in the sector. The challenge of this is in overcoming perceptions of competition, and any potential search cost in bringing aquaculture operators together.

4.98 For smaller and non-multinational, domestic businesses, financing challenges constrain the growth potential, which in turn restricts market share for the UK aquaculture sector. This puts UK businesses at a distinct disadvantage relative to competitors and undoubtedly has a detrimental impact on future growth prospects.

4.99 This is a significant challenge for UK aquaculture businesses and a constraint to growth. Banks and investors in the UK do not have an adequate understanding of the sector, and they often have imperfect information which creates an information asymmetry problem when making lending decisions, for example about the structure and asset base. This lack of understanding means that they are risk averse in making investment decisions in aquaculture, so limiting the flow of and routes for investment into the sector.

4.100 Evidence from consultations confirms that the industry’s assets are generally not assessed as viable collateral for loans. Other parts of the world that the UK aquaculture industry competes with do not face this issue which impacts on UK businesses’ ability to compete. Consultations also clearly demonstrated that lack of access to finance is a significant barrier to market entrants because investment is particularly difficult to secure for constructing and establishing new farms.

4.101 The equipment required for aquaculture production is often highly specialist and expensive, but with little re-sell value, particularly in a sector typified by a small number of large enterprises, and a large base of micro businesses. This can deter potential investors from investing in production companies and equipment supply chain companies. Industry equipment is not mortgageable. Banks often demand personal guarantees to secure investment which can be a barrier for business owners. Only a small number, such as Clydesdale Bank, have any appetite to invest in aquaculture companies. Thus few companies seek investment from UK financial institutions: Scottish Sea Farms are one of a small number that are doing so, for its hatchery site at Barcaldine near Oban.

4.102 This lack of access to finance means that the only options available to aquaculture companies in the UK tend to be government grants, or self-financing.

4.103 Alongside access to finance, securing affordable insurance can also be a constraint, deterring entrepreneurship in the sector by increasing the risk to potential business owners. As one consultee commented:

“[Producers] can’t get insurance for the kit that they purchase – insurers require that farms have to be running for at least a year with no problems before insurance can be put in place.”

4.104 Countries that the UK competes with in the aquaculture market have more positive approaches to investing in the sector which more effectively support the sector’s development and expansion. For example in Norway, equipment and licences are accepted as assets by banks during the loan application process. This makes Norwegian companies more able to invest and therefore respond and scale up production to meet global increases in demand. This investment model is being exported, with Nordic banks offering finance to aquaculture businesses in Shetland. This is a missed market opportunity for UK finance businesses, and also public sector lenders.

4.105 In the UK there is a need to examine access to finance for the aquaculture industry and the structural barriers. The aim would be to better understand it and open up more financing options.[140] This will help to reduce the perception of and attitudes to risk by financial institutions, and provide greater access to finance options to aquaculture production and supply chain businesses, so better supporting company and sector growth.

Technology, equipment and innovation

4.106 Research and innovation in aquaculture is partly driven by the need to address biological challenges and mitigate environmental impacts. Examples of R&D and innovation include new systems and automation as businesses seek to improve their productivity and competitiveness, for example automated feeding and using digital technology and remote sensing to monitor fish stocks, e.g. Roving Eye Enterprises in Orkney.

4.107 The fact that a high proportion of finfish aquaculture in Scotland is owned by a small number of international companies means that science and research often happens outside of the UK and innovations and solutions are imported from for example, Norway and Canada. This is a challenge for the UK sector as the high value R&D activities are taking place outside of the country so there is a deficit of domestic technological capital for aquaculture and so presents a constraint to growth in the UK industry. There is therefore a need to consider how UK aquaculture businesses can be encouraged and supported to grow, and investing in R&D and innovation in the UK is one way of achieving this. There are some positive examples. For instance, UK company Gael Force Marine is an innovator in aquaculture engineering, building on pen production in Inverness and Oban and now venturing into barge manufacturing in Lochaber.

4.108 The drive towards more exposed sites means that existing production equipment is not viable as it cannot withstand the more extreme marine conditions. Along with the need for new skills, the need for new types of equipment is a key challenge for the aquaculture industry if it is to successfully expand in to more exposed locations. It is driving research and innovation in terms of developing the equipment, expertise and technology required to operate in exposed locations. Examples include cage design solutions, offshore renewable power generation, remote cameras and sensors to monitor higher rates of wear and tear, use of drones, and automated feeding systems.

4.109 However, the cost of developing new systems and equipment, and demonstrating market viability are high, and arguably prohibitive currently. This is a barrier to investment amongst aquaculture companies, and evidence identified through the research indicates that, outside of large multinational companies, businesses are reluctant to invest at the scale required. Public sector intervention is required to support the innovation process, reduce development costs and bring solutions to market. As discussed, these developments also have associated skills implications, in terms of both R&D and implementation/operation.

4.110 Recirculation aquaculture systems (RAS) are currently being used to produce salmon and other species in Canada, USA and China. They are, by some, considered to be a solution for both finfish and shellfish production in the UK. However, they are perceived as risky and high cost relative to marine production as the technology is still relatively early stage, and so there is an information failure that discourages investment: the cost of equipment and perception of risk together impacts on the adoption of RAS as a means for aquaculture production. This is in part due to the degree of understanding on issues such as temperature control, waste management and energy use versus marine production. Generally, Closed System Aquaculture (CSA) is more highly controlled than open systems, and are already used in the hatchery and smolt production processes. However, how much RAS and other CSA systems will eventually supersede open marine production, either land-based or closed/semi-closed systems in the sea, remains to be seen.

Co-ordination failures and challenges

4.111 Aquaculture is subject to a number of co-ordination failures. Arguably the most prominent of these is conflict with other marine uses and activities. The sector is often viewed more negatively compared to other marine uses that are deemed to be less intrusive with less of an environmental impact. The growth of the sector will require the sector to be accepted within shared marine waters by all stakeholders, unless, for example, RAS fundamentally changes production. This acceptance and support will largely depend on how the industry responds to the environmental challenges it faces, and mitigates its own environmental impact, as discussed above, to ensure a more sustainable mode of development for the sector. These issues have been considered by a Scottish Parliamentary inquiry that reviewed the impacts of salmon farming.[141]

4.112 Another co-ordination failure arises from the perception of aquaculture by downstream sectors, for example across the accommodation and food services sector. Often, there is limited understanding of what aquaculture is or what it can produce compared to commercial capture fishing. Stakeholders in England were of the view that the food service industry in particular is not aware of the quality, provenance and traceability of aquaculture-produced seafood, as well as aquaculture’s ability to harvest to meet needs – it can be much more demand-driven than commercial capture fishing, and therefore can be more responsive to industry and consumer needs. This means that restaurants and hotels incorrectly perceive it to be an inferior product. This acts as a barrier to the sector realising growth and market opportunities, particularly in domestic markets.

4.113 Evidence from industry stakeholders in England indicates that the capability to cultivate a variety of species using RAS will be available in the short term.[142] Currently the cost of production is high and energy costs – particularly where companies are aiming to cultivate warm water species – are prohibitive, as noted above. To maximise the efficiency of RAS production, it would be logical to locate RAS operations close to markets, power supplies and transport/logistics hubs rather than in remote coastal locations where the industry is currently located, by necessity.

4.114 Standalone and land-based production would mean a step change on a number of fronts, for example access to a larger labour pool and reduced time and cost of routes to market. However, such a significant restructuring of the industry would be subject to geographical immobility challenges. If it meant that open-water marine aquaculture did not grow and in fact declined, then there would be significant implications for communities where aquaculture is a key part of the economy. In turn, this could increase regional disparity and erode the socio-economic resilience of already fragile remote rural areas.

Community relationships and social licence

4.115 Aquaculture’s social licence[143] for current and expanding production is under threat from a strong environmental and ethical lobby. In recent years, aquaculture has received a fair degree of negative media coverage, related to fish health[144], management of farm stocks and response to predation.[145] This has served to undermine how the industry is perceived by the public, and undoubtedly also negatively impacts on how the industry is viewed as an employment and career option.

4.116 There is a clear need to address issues around fish health and welfare, and to be seen to be doing so, if social licence is to be maintained and developed. This will need to be done in conjunction with clear, evidence-based communication and open engagement about how the issues are being addressed and the outcomes. Aquaculture stakeholders in Scotland in particular demonstrated concern that public sentiment and organised lobby groups are influencing industry and political decisions but that they are not always based on sound evidence.

4.117 There is no doubt that aquaculture remains a very important sector from a social perspective as well as an economic one. It is a key and a relatively high-income employer in rural areas where employment and career opportunities tend to be limited. The opportunities for higher value added jobs will grow with advances in technology in aquaculture. There have been some good examples of co-investment between the aquaculture industry and host communities in terms of housing, as well as in other infrastructure and services such as digital connectivity. For example, the development of the Scottish Salmon Producers’ Organisation (SSPO) Community Charter[146] shows how the process of community engagement should work and where benefits can be seen for both communities and farming companies. The Charter demonstrates the recognition by industry of the need for aquaculture sites and their staff to be more sensitive to the local community in which they are based.

Seafood processing - Sector overview

4.118 Seafood processing has an important role in meeting the increasing global demand for protein. It contributes to the security, integrity and provenance of UK seafood products. Seafood processing is interlinked and increasingly integrated with both aquaculture and fisheries and is often vertically integrated, particularly in aquaculture. The seafood processing sector is now increasingly involved in the drive towards traceability of product, whereby the processor links the buyer and primary sourcing. In turn, this is causing a race towards control of supply as market linkages become more contract-based than open market sourcing.

4.119 The seafood processing sector is relatively stratified. There is a high proportion of small primary processors, serving a wholesale market. These often have simple operating models with low levels of investment. Mid-sized processors tend to supply regional retail and export markets, often handling a wider range of species. The larger processors are small in number, but are often large enterprises (non-SME), with a high degree of value-added processing undertaken. They supply the major multinationals and serve large international markets.

4.120 Whilst some of the challenges facing seafood processing are shared with other marine sectors, they manifest themselves in a particular way in seafood processing. There is a concern that the challenges faced by seafood processing means that the sector doesn’t have the capacity to respond to increases in demand or in supply and production. As identified in Chapter 2, there is a growth challenge for the sector. The following sections examine the specific challenges and constraints in more detail.

Figure 3.3: At-a-glance assessment of sector constraints for seafood processing
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - - - - - - - -
England - - - - - - - - -
Northern Ireland - - - - - - - - - - -
Scotland - - - - - - - - - -
Wales - - - - - - - - - - -

Key

++ Strong growth; widespread distribution of impacts

+ Weak or no growth; weak distribution of impacts

- Weak negative growth; poor distribution of impacts

-- Substantial negative growth; very poor impact distribution

N/A No data available

Human resource and access to labour and skills

4.121 Seafood processing has a significant labour market failure. There is a disproportionate reliance on overseas workers (both EU and non-EU), often provided through employment agencies. However, this does not adequately meet the labour shortage in the sector. As identified in the research through consultation with stakeholders, there is a key challenge in access to the required labour force for the seafood processing sector. Across all parts of the UK, there is a reported lack of seafood processing workers, and often it is the local workforce that is in short supply. Stakeholders, especially in Scotland, reported that the long-term reliance on a non-domestic workforce to try and address this shortage means that the sector is not as closely connected to local communities. This disconnect has negatively impacted on recruitment from local communities. Evidence obtained through consultations suggests that in some seafood processing companies, more than three quarters of the workforce are non-UK nationals.

4.122 This has resulted in a labour shortage not just of lower skilled roles, such as gutting, filleting, portioning, etc. but also in science, research, product development and management. Where processing operations are in rural areas, lack of (affordable) housing and services coupled with remoteness encourages people to move out of the area and makes it harder to attract people in. This is a key barrier to employment and a driver of out-migration from rural regions, especially by young people. This further constrains access to the labour required by the sector. As with aquaculture and commercial capture fishing, seafood processing competes with other sectors for staff, and is often a less attractive option. Consultees noted that this is due to the nature of the work involved, working environment, pay/salary levels, etc., perceived or otherwise.

4.123 Consequently, some, larger processing businesses are looking to automation as a means to tackle the labour shortage. Automation may address some of the challenges by changing work processes and reducing the need for particular skills. However, this is likely to cause structural changes in the workforce, and new higher-level skills will be in demand. Stakeholders anticipate that there will be competition for these skills with other sectors as well, since upskilling across the incumbent workforce will not be a suitable solution.

4.124 The use of agency workers and reliance on non-UK workers also has other consequences. Consultees in England reported that there is a lack of training for and skills transfer between existing workers, meaning that there is a risk of skills gaps and shortages developing. There is also no shared and recognised training between employers, with companies delivering their own in-house training programme, as reported by Scottish stakeholders. This often means that training is repeated when a staff member moves from one company to another. This can impact on the productivity and efficiency of seafood processing businesses, and unnecessarily increases the training costs for businesses.

Infrastructure capital

4.125 There are deep-rooted infrastructure challenges facing the seafood processing sector that are a constraint to growth. They are particularly challenging for smaller processors and processing operations, for example in Wales and Northern Ireland, where there are very few, if any, large processors, as well as in smaller processors in England and Scotland.

4.126 There is challenge in business land and premises available to seafood processors. This was reported by consultees as being a particular challenge for small processing businesses, which are constrained by a lack of internal capacity or physical site space to expand and modernise their operations, often due to their location on small harbours or industrial sites. Modernising existing sites, or developing and relocating to new sites are capital intensive, and often beyond the reach of small operators, either due to lack of finance (a market failure), or lack of available sites. This restricts the functions and processes that they can carry out.

4.127 As a highly perishable product, access to temperature-controlled storage facilities and environments is essential for seafood, but there is a lack of cold storage capacity. Where individual companies lack access to their own facilities, this is an equipment issue, but stakeholders reported that there is a market failure in terms of available shared facilities that smaller processors can access. This structural issue is a particular challenge in Wales, where, apart from a small cold storage facility in Swansea marina, access is very limited. In Scotland, and especially in the North East of Scotland, installing thermal cladding or refrigeration equipment increases business rates, meaning that smaller companies often struggle to invest in the necessary equipment. One large England-based processor reported there are also short term issues because of Brexit as companies are stockpiling products and using more cold storage space. The overall effect here is one of constraining capacity for handling processed seafood, and therefore the ability of seafood processing companies – and thus the sector – to grow.

4.128 Restricted access to adequate facilities and equipment also impacts negatively on environmental health standards. Poor quality facilities increase the risk of poor environmental health. Despite the availability of funding to address the issue of facilities and environmental health quality, for example from Seafish to build up quality and accreditation, evidence identified through consultations suggests that a number of operators may be operating below industry standard. The risks could have a detrimental effect on the seafood processing sector and its international reputation for quality, provenance and integrity. This is a negative externality and hence a market failure, as the poor standards or ‘rogue’ trading of one firm could impact on the brand value of UK seafood and therefore on all other firms in the sector, as illustrated by the following comment:

“These operators are frustrating the rest of the industry, and have a detrimental effect on the sector… [there is] a reputational risk.”

4.129 This can arguably negatively impact perceptions of UK seafood in comparison to competitor countries such as Norway. Such an effect would undoubtedly undermine the UK’s competitiveness on the global stage as a result.

Financial capital

4.130 In line with other marine sectors, access to finance for Seafood processing can be limited. This is a structural market failure that constrains investment in expansion, upgraded facilities or innovation in products and processes. As identified through research with Scottish and English stakeholders in particular, companies struggle to secure investment because banks consider investment to be too risky: there is also a lack of understanding on the part of lenders of investment and equipment requirements to grow seafood processing businesses.

4.131 In some instances, access to finance may be problematic because equipment is too specialist and thus has little re-sell value, i.e. it is not mortgageable, though there are some companies[147] that deal in used processing equipment. In other cases, many companies are effectively prevented from purchasing new equipment even if they are able to access financing. Whilst seafood processing equipment and technology often comes from international suppliers, for example in Germany or Iceland, asset finance requirements mean that kit has to be purchased in the UK. To overcome barriers such as this, some industry bodies are in the process of developing investment toolkits to support businesses in accessing asset finance, for instance Seafood Scotland.

4.132 It was also reported through the research that the challenges in accessing finance have been exacerbated due to Brexit. Lenders’ appetite for investment has been impacted by the ongoing uncertainty.

4.133 The extent of development and capability within small processing companies can impact negatively on the ability of the sector to attract inward investment. Where processing companies have a low level of technological development or processing capability, stakeholders are concerned that companies are at risk of buy-out to secure supply for inward investors, with higher value-added activity shifted overseas rather than companies being developed and presented as attractive propositions for further development in the UK. This ultimately devalues the UK seafood processing sector, and constrains its competitiveness and ability to grow, to the benefit of overseas competitor markets.

Technology and innovation

4.134 Automation is being considered, and in some cases implemented, by seafood processors in response to the skills shortage and to improve efficiency, productivity and innovation. However, the research identified that this may be contingent on the skills supply issue being at least partly addressed in the short term: if businesses cannot quickly resolve the challenge of accessing an adequate workforce, businesses may have to downscale and so may not have the resources to invest in automation and new technologies. This would negatively impact on growth, and the sector’s ability to grow in future.

4.135 An immediate impact would be that access to new technology would only be available to larger seafood processors. This would restrict the ability to grow through innovation to the larger processors in England and Scotland. However, a knock-on impact could be a shift to more wholesaling and distribution, and thus a reduction in primary processing. This would remove a considerable portion of the processing value chain from one part of the UK to another, or indeed from the UK altogether. Value-added activities would be undertaken elsewhere, reducing the UK’s competitiveness. This is a significant risk to the sector in the UK, particularly for North East Scotland.

4.136 Businesses may think that the answer to the productivity and skills challenge facing seafood processing is to invest in new technology and automation. However, there is a strong view amongst stakeholders that investment at the present time will not generate sufficient returns to justify the capital outlay, given the small margins in the sector. Thus the seafood processing sector remains unable to fulfil its growth potential, and is at a disadvantage to countries such as Iceland[148], which has seen increasing levels of automation since the 1990s, and as a result, increases in productivity.

Political uncertainty and the impact of Brexit

4.137 Whilst not a market failure, Brexit presents some specific challenges to seafood processing in common with many other UK food processing and manufacturing operations, which are constraining growth in the sector. For example, whilst Northern Ireland processors are looking to grow value-added processing (historically, the majority of value-added activity on Northern Ireland produce has been carried out elsewhere, such as in France), there will be complications if there is no longer free movement of goods across borders. This will restrict growth opportunities in export markets that Northern Ireland is arguably more dependent on than perhaps elsewhere in the UK.

4.138 Brexit is likely to make the UK a ‘third’ country which means that there will be new certification regimes for shellfish and seafood products entering the EU market from the UK. This may add to the costs of exporting, as well as taking additional time to complete paperwork. Added to this, whilst some European ports may have seafood ‘fast tracks’, there is no guarantee that they all will. This is a risk to companies exporting fresh and frozen seafood produce, including live products, and will add to costs. All this will serve to restrict access to export markets that the UK currently has unfettered access to. Though there would be opportunities to explore alternative export markets, this would ultimately take time to establish; in the meantime, growth for the UK’s seafood processing sector would be constrained.

Co-ordination failures and challenges

4.139 There are a number of challenges related to co-ordination failures in terms of seafood processing’s relationship with other sectors, for instance commercial capture fishing. Stakeholders report that processors, especially in Scotland, often don’t know what product will be available until the day of landing as fishing vessels provide no forward notice to processors (information asymmetry). Skippers are required to record catch data and so providing advance notice of catch should be possible in theory, but does not happen in practice. There is a perception that fishers believe that advance warning may negatively impact on price at market. This results in a lack of vertical integration in the fisheries-processing supply chain, particularly for white fish, which is not the case in competitor countries where fishers and processors are more aligned:

“Compared to competitor countries like Iceland, vertical integration is the biggest point of difference…it allows Iceland to catch to order…rather than being supply driven.”

4.140 This is a constraint for both fisheries and processing, with operations being less efficient than possible and limited scope for forward planning. As a result, growth opportunities are not being realised, and the sector (in conjunction with both fisheries and aquaculture) operates less efficiently than competitors – and so is less competitive.

4.141 A co-ordination failure that affects small processors in particular is that of understanding the end market. These processors tend to focus on primary processing, and are far removed from their markets. They often supply wholesalers rather than end buyers, which means they are less aware of their end markets and less able to respond to changes, which is a constraint to their development.

Community relationships, social licence and consumer preference

4.142 Seafood processors looking to expand or establish new facilities frequently encounter public opposition. This is usually on the grounds of impact on the public environment, and smell in particular. This is a clear constraint to growth and development. Addressing such issues are not straightforward, but they are important to maintaining or improving social licence.[149] This will need to be done with open engagement and evidence-based communication about how the issues are being addressed, and the intended outcomes. Seafood processing stakeholders in both Scotland and England reflected that this was a concern, and could impact on future growth of the industry.

4.143 A fundamental issue for growth of the sector in domestic markets is consumer preference, and how to bring about behaviour change in terms of what people in the UK eat. Over time, changes to eating habits in the UK have led to us consuming less seafood and a narrower variety than was the case historically. This had led to a situation described as:

“…exporting what the UK catches, importing what the UK eats.”

4.144 The phenomena contributes to the wider debate on the theoretical versus functional self-sufficiency in food production.

4.145 Allied to this there has been a decline in knowledge and confidence in preparing and cooking seafood amongst UK households. This is a significant challenge in exploiting domestic markets, bringing new products to market and addressing the balance between exports and domestic consumption, which may be important if Brexit causes a decline in exporting to the EU.

4.146 Bringing about a change in consumer eating and cooking habits is a long-term project. As well as increasing consumption, it could broaden the range of species that we consume, including to under-utilised species and types of fish historically (but no longer) consumed in the UK, such as cuttlefish. To have any real impact and fuel growth, there would need to be substantial and sustained effort to bring about change in preference amongst a sizeable proportion of the UK’s population. This is a potentially significant growth market if consumer preference can be influenced; however, the required education and marketing would not be undertaken by a single seafood processing (or indeed fishing) business, as the whole of the sector would stand to benefit – i.e. a potential market failure due to spill-over effects (positive externality). Effective co-ordination would therefore be required. As an example of this, the Shellfish Association of Great Britain is undertaking work through Billingsgate Seafood School, as well as a programme of primary education engagement to encourage greater levels of seafood cooking and consumption at home. They are also delivering an EMFF-supported business-to-business project aimed at encouraging more restaurant and hospitality businesses to use seafood, and there is public promotion around this.

Commercial seaweed harvesting - Sector overview

4.147 The commercial cultivation and harvesting of seaweed has attracted increased attention in recent years, boosted by the publication of advisory notes regarding seaweed cultivation. There is enormous growth potential but the sector currently remains small-scale in the UK. There are some well-established, hand-harvesting operations, such as in South Wales, and also the Western Isles of Scotland and parts of the West coast of Scotland for food products such as Laverbread and salt substitute. More recent commercial and industrial developments have seen companies established to commercialise the extraction of seaweed components for a range of higher value pharmaceutical, cosmetic and food uses.[150]

4.148 Stakeholders across the UK recognise that seaweed is a very valuable resource that is not currently being exploited. However with some sites now licenced to cultivate, this may change. Nevertheless the small base brings a number of challenges around scaling up the industry on a sustainable basis. These are dealt with in turn below.

Figure 3.4: At-a-glance assessment of sector constraints for commercial seaweed harvesting
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - - - - - - - -
England - - - - - - - - - - -
Northern Ireland - - - - - - - - - - -
Scotland - - - - - - - - - - - -
Wales - - - - - - - - - - -

Key

++ Strong growth; widespread distribution of impacts

+ Weak or no growth; weak distribution of impacts

- Weak negative growth; poor distribution of impacts

-- Substantial negative growth; very poor impact distribution

N/A No data available

Human resource and access to labour and skills

4.149 As may be expected in a nascent sector, a sustainable skills supply is a challenge and a constraint to growth. There is a shortage of the technical and operational expertise required to develop the sector. This is a constraint on the sector in terms of access to the necessary expertise for development and growth. However, this is a fast evolving area: the Scottish Association for Marine Science UHI is a global hub for research capabilities in marine biotechnology.[151] Swansea University in Wales[152], the University of Exeter and Plymouth Marine Laboratory[153] in England and Queen’s University Belfast[154] in Northern Ireland all have expertise in seaweed research. Therefore this appears to be a short-term constraint, with industry-focused institutes developing the necessary scientific skills to underpin R&D and innovation to support the industry. However, a longer term consideration may be in providing skills and labour for operational roles and in developing supply chains and new markets, as the industry develops and grows.

Environment and natural resources

4.150 The seasonality of algal biomass acts as a constraint, and does not guarantee a constant or predictable supply of seaweed. This potential variation in yields may have an undue effect on seaweed prices, the reliability of which would be an influencing factor for market entrants and start-ups.

4.151 Whilst existing small-scale cultivation is considered low risk, large-scale cultivation is facing challenges due to concerns from policymakers and others about environmental risks. This is due to the potential for a market failure to arise through rapid growth of the industry. Such a situation could result in environmental degradation and depletion of natural resources.

4.152 There is uncertainty on the extent to which commercial seaweed harvesting may impact on the marine environment and other marine uses. However, existing research suggests that the impacts may be significant, and any commercial activity should be closely monitored to address uncertainty, fill gaps in knowledge surrounding commercial seaweed harvesting, and facilitate informed decision-making.[155]

4.153 In the absence of data and evidence, stakeholders and policy makers have acted to mitigate against potential negative externalities. A number of legislative mechanisms, such as Scotland’s Crown Estate Act 2019, Environment (Wales) Act 2016 and others seek to safeguard against unsustainable commercial harvesting. The Scottish Government is currently conducting a review to gather evidence to help ensure existing seaweed harvesting activity and future proposals are sustainable, in order to ensure that Scotland’s marine environment is protected.[156] Decisions and policy should be based on sound data to balance harnessing the potential benefits, but sustainably.

Financial capital

4.154 Two key financial challenges exist for the sector. First, given the scale of the sector, there is a lack of a supporting industry ecosystem, and with this a lack of access to finance. In many senses, it is an unknown quantity to banks and commercial lenders, and so is deemed as an investment risk, even more so than aquaculture or commercial capture fishing. This is compounded by the seasonality of algal biomass, as discussed above. This restricts investment in the sector for R&D or equipment purchase, and without the necessary financial outlay, businesses are not able to grow and take advantage of market opportunity.

4.155 Secondly, seaweed harvesting itself is not necessarily high value, but the downstream value chain can be very high value, for example pharmaceuticals and other marine biotechnology applications. As identified in consultation with stakeholders, there is an information failure here, in that the downstream industrial and commercial applications of seaweed are not taken into consideration by investors.

Technology and innovation

4.156 A key constraint to the development of the commercial seaweed harvesting industry identified through this study is a lack of knowledge exchange and research alignment between academia and industry. Whilst some industry actors are progressing with industrial research on the feasibility of seaweed harvesting on a commercial basis, higher education and research institutions are undertaking a considerable range of scientific research. However, there is a perception that this research is not immediately accessible to industry. There is a need to overcome this information failure and bridge the translation ‘gap’ to help better engage industry in research activity and outputs, and at the same time ensure that research is aligned to the needs of industry. Currently, there is a perception that businesses are seeking to grow without full understanding of issues such as the environmental impact of scaling up operations, for example. This is a particular concern in Scotland.

Social licence constraints

4.157 Commercial seaweed harvesting has been subject to perceptions of scale: small-scale harvesting being associated with local and ‘natural’ products, whereas recent efforts to develop large scale seaweed harvesting[157] have faced strong opposition, based on sustainability concerns. These challenges are not unlike those faced by aquaculture operations. Without addressing these sustainability concerns, seaweed harvesting will undoubtedly be constrained by a lack of social licence to operate, and negative impacts arising from how the industry is viewed.

Offshore renewables - Sector overview

4.158 Whilst offshore wind is a comparatively mature sub-sector, other components of the offshore renewables sector are nascent. Though there have been some recent success stories in terms of deployment, the growth of wave and tidal energy in the UK is uncertain. There are a range of factors impacting on the growth potential of offshore renewables, and these are set out in the sections below.

Figure 3.5: At-a-glance assessment of sector constraints for offshore renewables
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - - - - - - -
England - - - - - - - -
Northern Ireland - - - - - - - - - -
Scotland - - - - - - - - - - -
Wales - - - - - - - - - -

Key

++ Strong growth; widespread distribution of impacts

+ Weak or no growth; weak distribution of impacts

- Weak negative growth; poor distribution of impacts

-- Substantial negative growth; very poor impact distribution

N/A No data available

Human resource and access to labour and skills

4.159 Wave and tidal energy is an emerging sector and there is not yet any evidence-based clear understanding of what skills are required over and above the need for STEM skills across the energy sector and wider economy. Due to its early stage, there is of course a requirement for the skills to carry out research and development, including testing of new technologies.

4.160 Offshore wind, is relatively mature but skills supply is still perceived to be an issue by stakeholders and employers in the sector, and was a key finding in the research. Evidence indicates that there is a high proportion of hard-to-fill vacancies amongst offshore wind development, operation and supply chain employers.[158] This is despite there being a high degree of skills in the sector that are transferable with/from other sectors, such as marine engineering, diving, and oil & gas.

4.161 Whilst information on skills gaps is lacking, there is an identified market failure in the UK in terms of domestic access to the engineering skills to build components for offshore renewables. An information asymmetry also exists here, in the time lag between current training versus likely future demand for skills. Further, people choosing particular education routes do not know of opportunities that may arise within an expanding industry. There is also a mismatch between the region of the UK in which there is technology and engineering expertise and where there is offshore wind and offshore wind installations. For example, Northern Ireland has a wide range of engineering, aeronautical and materials expertise as a result of its aerospace industry. These are valuable skills for offshore wind, but there are few offshore wind installations in close proximity to Northern Ireland, as seas are much deeper around Northern Ireland’s coast and so require different and more expensive technology.

4.162 The impact of this skills market failure is that many of the higher value jobs and activities currently take place outside of the UK and so the value is not captured in our economy.

Environment and natural resources

4.163 The UK has some of the best wave and tidal natural resources in the world – a significant asset that contributes to the drive for clean energy and growth. Around 50% of Europe’s wave energy, and 35% of Europe’s tidal energy is in UK waters. The UK Government estimates that wave and tidal energy has the potential to meet up to 20% of the UK’s current electricity demand – an installed capacity of 30-50 GW.[159] However in reality, tidal is more developed than wave with industry and strategic stakeholders reporting that wave energy may be at least 10 years behind tidal in terms of progress towards commercial viability.

4.164 The Offshore Renewable Energy Catapult and the Offshore Renewable Energy Science and Innovation Audit[160] have identified a range of opportunities, focused on increasing installed generation capacity to take advantage of this significant resource to create cleaner, secure energy systems. There are a range of installations around the UK, including around the Pembrokeshire coast and Anglesey in Wales to take advantage of its favourable tidal conditions, Wave Hub off the North coast of Cornwall, and Strangford Lough in Northern Ireland. However, it is no surprise, given its coastline that Scotland has access to the greatest share of potential marine (wave and tidal) energy resources, and has consented and deployed more wave and tidal energy devices than anywhere else in the UK. Through EMEC[161] on Orkney, there have been more wave and tidal devices deployed than in any other single location in the world.

4.165 However, there is a major challenge here in harnessing this natural resource. The strength and power and force of waves and tidal currents in the UK’s territorial waters – particularly around Scotland – has proved a significant limiting factor in the development of marine energy generation, and for wave energy in particular. There have been some high profile failures[162] in test devices for wave energy due to the force generated by waves at test sites, although this is to be expected in emerging technologies which are inevitably risky.

4.166 Marine energy can often conflict with other marine uses, such as fishing or marine tourism, through competition for space. However, there is some scope for co-location and there is emerging thinking about the potential for this, as identified in the research. As well as providing power (or simply new locations[164]) for aquaculture production sites, it is possible that marine energy installations – and specifically offshore wind farms – can provide opportunity to regenerate fisheries, by creating ‘protected zones’ that are out of scope for fisheries.[165]

Infrastructure for offshore renewables

4.167 A critical constraint is that the current national grid configuration is not suited to capture energy generated from more dispersed, decentralised energy sources, such as marine renewable energy. The remoteness of many sites for wave and tidal energy generation, means that they are not currently connected to the national grid. For example, Shetland has significant potential for both tidal and wave energy developments but there is no connector to the UK National Grid.[166] There is a technological gap that requires R&D into cost-effective solutions for power transmission. Currently, individual generators bear the risk, whilst many stand to benefit from any gains.

4.168 This lack of route to market is a clear market failure. It means that we can generate large quantities of clean, renewable energy but lack the infrastructure to allow it to be used to meet the demand for energy effectively meaning there is a barrier for supply to reach demand. This means that it is not having the impact it could have on meeting environmental targets and also, that the sector’s growth is constrained as it cannot get its ‘produce’ to market. If this is not resolved, the UK offshore renewables sector may lose its position as a global leader and see a declining market share.

Financial support

4.169 Financing and accessing investment is a challenge for organisations operating in the marine renewable energy sector, not least because the sums are substantial. The cost per installed MW of offshore wind is high although reducing. However, wave and tidal energy development remain high cost because they are in the early stages of technology development. Because of this and the inherent risk, investors are reluctant to enter the market. Government intervention mechanisms such as the Scottish Government’s Energy Investment Fund (EIF, which superseded earlier mechanisms such as the Renewable Energy Investment fund (REIF))[167] seek to encourage greater levels of investment by acting as junior lenders to attract private sector investment, and offset commercialisation costs.

4.170 Previous studies estimating the future contribution of the UK’s energy generation were predicated on there being a Renewable Obligation that would be paid to the generators, or that wave and tidal would be ring-fenced within Contracts for Difference (CfD).[168] Recent rounds of the CfD auctions haven’t supported offshore renewables, making the route to market for wave and tidal energy in the UK very challenging, because of the inherent risks to renewables generators, as above in paragraph 4.167. These market incentives are essential to address the evident market failure, that the technology being used is new and comparatively unproven, and so cannot be competitive in current energy markets. The support route is primarily CfD, but this currently has no ring fenced provision for wave and tidal energy. Adequate support mechanisms are needed so the technology can break into the marketplace.

4.171 This issue has been compounded by competition from offshore wind, a much more mature technology which has been supported by government and industry to scale up, and as a result, is currently more competitively priced.

4.172 These factors have inhibited the development of wave and tidal energy and its progress to market. As identified through the research, there is broad agreement that some tidal and most wave technology is not yet ready for deployment without CfD support. Welsh stakeholders reported that some technologies are considered to still be too risky for the Welsh Government to support without the security provided by CfD.

4.173 A further challenge facing the UK offshore renewable market is that investment and subsidy for wave and tidal energy in the UK remains limited, with the result is that commercial investors are more attracted to investments in other marine energy markets such as the Far East, for example tidal barrage operations in South Korea. The danger for the UK economy is that we lose competitive advantage in global markets, as well as lose ground in terms of developing and owning the technology.

Technology and innovation

4.174 As highlighted in the MAXiMAR Marine Economy Science and Innovation Audit[169] and other studies, wave and tidal technologies, as well as floating offshore wind, are all still at a relatively early stage. Investment is required to share the risk and demonstrate feasibility and market readiness, or in the case of wave energy, work towards it. This is demonstrated by the number of current and recent investment and support mechanisms targeting marine renewable energy, and wave and tidal in particular. The Atlantis/MeyGen development in the Pentland Firth is a good example of a success story of public sector investment from Scottish Investment Bank through the Renewable Energy Investment Fund (the predecessor to the Energy Investment Fund), the Crown Estate, Highlands and Islands Enterprise, and the then UK Government’s Department of Energy and Climate Change (DECC; merged with Department for Business, Energy and Industrial Strategy (BEIS) in July 2016). The investment ensured commercial viability of the project and attracted private sector investment through Equitix.

Political challenges

4.175 There is a perception amongst stakeholders, particularly outside of England, that the political interest in wave and tidal energy varies across the UK. There is a strong sense that some devolved administrations are much more engaged with it whilst the UK Government is perceived to give it less priority and place less value on the potential for wave and tidal energy. As one stakeholder noted:

“There is a challenge regarding conflicting responsibility on devolved and reserved matters, where there needs to be much more alignment.”

4.176 There is a concern that if the UK Government does not fully recognise and support its potential, the development of wave and tidal energy in the UK will be constrained. This means that it will not become a viable UK energy source that can access the enormous opportunities presented by the renewables energy market. The lack of ring-fenced provision for wave and tidal in successive rounds of CfD auctions, which are run from Westminster, is offered by stakeholders as a material demonstration of the variable interest and level of priority in different parts of the UK. The perceived disconnect between UK Government interest and the potential of the sector may impact on future growth, and the ability of offshore renewables to fully exploit opportunities.

4.177 It was also noted through the research that many of the challenges facing the offshore renewables sector are compounded in Northern Ireland by the existence of a single energy market on the island of Ireland.

Community relationships and social licence

4.178 Public perception around off-shore windfarms can be a challenge: the presence of large windfarms along the coastline is not always viewed positively and can meet substantial opposition for example through groups such as The Save Our Scenery Campaign in Wales and Scotland Against Spin. The main objections are centred on aesthetics, with a body of opinion objecting to off-shore wind farms on the basis that they are an ‘eyesore’, and also that the construction of off-shore wind turbines and wave and tidal devices can be disruptive to the marine environment and sea life. In the research some stakeholders raised concerns about the impact of marine energy devices on marine life. The impact of offshore wind devices on birds is well-documented, but there may be similar issues with aquatic wildlife. Similar concerns were raised about piling for offshore wind turbine foundations, and anchor cables for tidal turbines. Countering this, there is evidence to suggest that mollusc and fish populations have risen as the turbines act as an artificial reef.[170] It may be possible to site windfarms further out to sea in future, but technology is more complex and currently expensive, and the construction and maintenance would be more difficult and costly.

4.179 If this opposition means that offshore renewables energy devices, be they tidal, wind or wave, are not deployed, then the growth of the sector will be constrained.

Oil & gas decommissioning - Sector overview

4.180 A key challenge around oil & gas decommissioning is the degree of uncertainty that exists regarding the scale of opportunity. Previous estimates placed a ten-year expenditure for decommissioning at £17.6bn[171] on the UK Continental Shelf (UKCS) but this was recently updated to £15.3bn over the next decade.[172] Part of this uncertainty is due to revisions of anticipated length of field life estimates, and extended forecasts on economic recovery. The precise nature and timing of support required for oil & gas decommissioning is therefore unclear. This causes an added challenge in that it is difficult for companies to invest in greater capacity and capability without proven demand, or indeed a clear route map for sector development.

Figure 3.6: At-a-glance assessment of sector constraints for oil & gas decommissioning
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - + + - - -
England N/A N/A N/A N/A N/A N/A N/A
Northern Ireland N/A N/A N/A N/A N/A N/A N/A
Scotland - - - - + + - - -
Wales N/A N/A N/A N/A N/A N/A N/A

Key

++ Strong growth; widespread distribution of impacts

+ Weak or no growth; weak distribution of impacts

- Weak negative growth; poor distribution of impacts

-- Substantial negative growth; very poor impact distribution

N/A No data available

Human resource and access to labour and skills

4.181 The UK is emerging as a global leader in offshore decommissioning, with strengths in the technical and commercial aspects of decommissioning. Its competitive advantage is due to expertise in the North Sea. Nevertheless, there is perceived to be a lack of experience and knowledge exchange (particularly in project management), which presents a challenge. There have been few large-scale decommissioning projects or sustained periods of activity to date. Evidence through the research has identified that a number of supply chain companies, such as Bibby Offshore, Expro, Global Energy Group and Veolia Peterson have responded to opportunities in decommissioning and have developed high-level expertise. However, these skills are relatively concentrated, and the lack of continuity in operations means that there have been few opportunities to share knowledge and best practice. Currently, this lack of skills and expertise is a constraint to realising the potential in Scotland and so benefiting the UK more widely. It also impacts on the ability to export these skills to overseas markets, and thus secure more gains from the UK’s oil & gas decommissioning expertise.

Environment and natural resources

4.182 As the oil & gas decommissioning industry develops, there is a debate regarding full decommissioning of infrastructure versus leaving at least some installations in situ. Removal of platforms, well-plugging and abandonment carry a risk of pollution; equally leaving platforms in place may also have some environmental consequences. [173] However, allowing infrastructure to remain can create natural reefs, and actually allow sea life to flourish. How the sector develops will influence public opinion on oil & gas decommissioning. There is an environmental lobby arguing the case for a “rigs to reef” approach.[174] Whilst this may ultimately represent a loss or only partial realisation of economic opportunity presented by decommissioning, it could serve to strengthen the UK’s marine environmental resource. Nevertheless, directly addressing a potential market failure – the negative externalities of pollution that may occur with well-plugging and abandonment – is a constraint on the sector in terms of the technical complexities and financial layout required. Though there is much activity supported by both industry, academia and the public sector – such as the Oil & Gas Technology Centre and Oil & Gas Innovation Centre, both based in Aberdeen – this is an areas that is likely to require ongoing support to bring further innovations to market.

Infrastructure requirements for oil & gas decommissioning

4.183 The majority of decommissioning activity in the UK is expected to take place in Scotland. Although onshore recycling and disposal is a relatively mature sector with established supply chains, stakeholders identified that there is a lack of suitable port and supporting infrastructure capable of handling an increase in decommissioning activity, and larger decommissioned infrastructure. There is also a lack of on-shore laydown areas and hazardous waste capability. This market failure in infrastructure provision means that the UK is unable to take advantage of larger decommissioning project opportunities. Some Scottish ports are currently expanding and developing their deep water facilities in response, or have expansion plans.[175],

4.184 Decommissioning activity must be supported by accessible recycling facilities for the materials generated by decommissioning. Port development must consider this if it is not to act as a constraint to growth. Decommissioning and infrastructure recycling facilities are often not immediately located near ports, thus increasing transportation times and costs. There is a natural monopoly here in that it isn’t cost effective for all ports to have recycling facilities; therefore it is more advantageous to have strategic hubs and ensure their not charging monopoly prices. However, access to these hubs needs to be better enabled.

Political challenges facing decommissioning

4.185 Overseas competition is a significant challenge for UK oil & gas decommissioning. Globally it is recognised as a sector with enormous potential and many international facilities and operators are supported or financed by national governments. They offer a lower cost option to oil & gas exploration and decommissioning companies, putting UK operations at a distinct market disadvantage.

Marine tourism - Sector overview

4.186 Tourism is a very important sector in many parts of the UK and makes an important contribution to the economy, perhaps most significantly in more rural and isolated areas such as Cornwall, the Highlands of Scotland, West Wales, and in rural parts of Northern Ireland. Marine tourism is a growing sector but faces a number of potential constraints.

4.187 The volume of visitors across the breadth of marine tourism activities and opportunities can have a negative impact on coastal communities and the marine environment of the UK. High visitor numbers, and the types of marine tourism activity, can place stress on physical resources as well as the amenities, services and facilities in the areas and the communities that support marine tourism.

4.188 The structural challenges and constraints facing marine tourism across the UK are explored below.

Figure 3.7: At-a-glance assessment of sector constraints for marine tourism
Human/skills Environmental/ Natural Infrastructure Financial Technological Political/co-ordination Community/ social
UK - - - - - + N/A - - -
England - - - - - + N/A - - -
Northern Ireland - - - - - + N/A - - -
Scotland - - - - - + N/A - - -
Wales - - - - - + N/A - - -

Main challenges and constraints

Human resource and access to labour and skills

4.189 Marine tourism is a key source of employment and self-employment for many coastal communities. It provides jobs and income in areas where there are limited opportunities. However employment in marine tourism, whether in retail and hospitality or in other tourism-related sectors, is often low-skilled, low-paid and seasonal, with little or no career progression.[177]

4.190 Nevertheless, low pay and lack of career opportunities in this and other sectors in remote, rural coastal communities is a major driver for out-migration, particularly of young people. This constrains the sector’s access to labour. Research recently undertaken by ekosgen[178] has demonstrated the extent to which a lack of employment and career opportunities is a major factor in causing young people to leave the Highlands and Islands of Scotland, many areas of which are fragile coastal communities. This is a pattern that is repeated across many rural and coastal areas of the UK.

Environment and natural resources

4.191 The research with key informants identified that marine tourism remains under-developed, with a number of stakeholders considering that it was currently a “missed opportunity”. There is a market failure arising from a positive externality, in that the environment and infrastructure are public goods that are free to access, and so tourists enjoying it don’t always pay. As a result, there is an underinvestment in the marine environment’s natural capital compared to what is required to achieve the social optimum.

4.192 Many stakeholders pointed to the respective offers in each country, whether this was sailing in Scotland, wildlife tourism in Wales, heritage coastal tourism in Northern Ireland or marine sports in England. Northern Ireland is considered to be particularly under-developed, as tourism has only really emerged as a strong sector overall in the last decade. There is a lag relative to the rest of the UK as a result of the Troubles, but there has been a recent shift driven by the popularity of Game of Thrones and other TV programmes and movies filmed in Northern Ireland.

4.193 There was a consensus that there is no detailed understanding of the current and potential economic value of marine tourism to the UK: the market failure here is that marine tourism actors are operating with imperfect information. Consultees acknowledged that a key part of the challenge here is a lack of consistent and robust data on either socio-economic aspects of marine tourism, or indeed on environmental aspects. This is needed to better plan and manage tourism, particularly where over-tourism is a potential challenge, so that the visitor experience and the environment as the driver of tourism is not diminished. Without this, responsible bodies are reluctant to permit marine tourism activity, or businesses risk operating in an unsustainable manner.

4.194 It was widely acknowledged that marine tourism should not detract from the environmental value of the UK’s coasts and marine environment. Many stakeholders identify that a high volume of tourism, and the consequent pressures can have an adverse impact on the marine environment. Stakeholders in Wales perceive this to be a particular challenge, with a significant proportion of Wales’s coastline having protected status. Marine users may be unaware of the environmental sensitivities of many marine leisure activities, and there was an identified need for higher levels of education amongst visitors and marine users.

Infrastructure challenges and dependencies

4.195 The infrastructure in coastal destinations in the UK often present two inter-related structural challenges.

4.196 On the one hand, the rural and remote nature of many marine tourism destinations means that they can be relatively distant from their markets, and attracting visitors is a challenge as is actually getting them there because transport links and roads are inadequate. This is a very specific market failure that arises from the geography of coastal areas, and the relative immobility of tourists to these areas compared to other destinations.

4.197 Conversely, these areas often have a lack of necessary infrastructure to adequately support tourism, across coastal and on-shore areas and the immediate hinterland. This is a structural challenge that manifests itself in terms of inequality of resources, services provision, investment, etc. in remote coastal areas. This can lead to degradation of infrastructure such as footpaths, car parks, etc. as well as unsustainable demand on services and utilities.

4.198 In some cases, where geographical barriers to visitors can be overcome, there may be negative impacts on the attractions themselves arising from the volume of visitors. This has been reported in Orkney on sites such as the Ring of Brodgar, Skara Brae and Maes Howe, arising from an increase in volume tourism from cruise ships.[179] Additionally, the infrequent or irregular pattern of high volumes of tourism – e.g. from cruise ships, a particular challenge faced by coastal communities such as Portree and Kirkwall – mean that businesses may face challenges in accommodating short-term spikes in visitor numbers. This may also cause tensions with local communities.

4.199 Often, there is a silo approach to tourism development, in isolation from non-tourism matters such as infrastructure that serve to make tourism a success in many destinations. This often constrains development of marine tourism destinations, with public and private stakeholders not working together effectively to ensure development that meets the needs of marine tourism and the communities that support it (a co-ordination failure). There is a need for a holistic and integrated approach to such matters, with local authorities, transport authorities, community development trusts and business organisations more actively involved in tourism destination development, and tourism bodies and destination management organisations (DMOs) involved to a greater degree in strategic, non-tourism matters of service and infrastructure provision.[180]

4.200 One potential solution to ensuring adequate infrastructure is the implementation of a transient visitor levy, or tourism tax. This is being given some consideration in some destinations in the UK as a means to generate revenue to invest in and maintain infrastructure.

Political challenges

4.201 Internal (UK domestic) competition for visitors is a particular challenge for the sustainable growth of marine tourism in the UK. From an international perspective, visitors are attracted to the UK, or to countries within the UK in the first instance; it is arguable that there is then a degree of competition between destinations within the UK for those visitors.

4.202 Stakeholders identified that this may raise an issue of parity in area-based approaches to development, or in the support provided to destinations for their development. Consequently, there is a danger that a degree of displacement may occur, prompting questions about the true extent of any additionality of public sector support for marine tourism.

4.203 At a more transitory level, Brexit appears to be having an impact on marine tourism, and tourism more generally. Evidence identified through the research, along with other evidence and data, suggests that overnight visitor numbers and spend are down between 2017 and 2018.[181] Additionally, some industry stakeholders reported that the number of sailing vessels in Scottish waters has dropped recently. It was reported through consultations that this was in part due to exchange rates and the drop in the value of the Pound, meaning that vessels were being bought and moved to other areas, e.g. Scandinavia.


Contact

Email: Amy.McQueen@gov.scot