For most of us, abalone, also known as ear shell, sea ear or mutton fish, is a seafood we’ve heard about but never tasted. They are single-shelled, algae-eating, marine molluscs.
Can’t quite visualise it? To save us trying to explain it further, they look like this.
Their meat is highly sought after, making it one of the most expensive seafoods in the world. Here’s a bit of fun trivia for you – the top ten most expensive seafoods in the world (according to the good people at TheMostExpensive):
10. Lobster
9. Snow Crab
8. King Crab
7. Percebes
6. Abalone
5. Pufferfish
4. Coffin Bay Oysters
3. Baby Eel
2. Caviar
1. Bluefin Tuna
For people wanting to purchase a premium variety of abalone such as greenlip or blacklip abalone, you’re looking at ~$100/kg. Wild abalone, as opposed to farmed abalone, can reach prices of $500/kg.
A pretty hefty price tag for a pretty ugly seafood.
Such a high price may be surprising when abalone is found around the world, along the coastal waters of every continent aside from North and South America and the Arctic and Antarctica. But the abalone faces a threat of extinction, due to both overfishing and the acidification of oceans. The International Union for the Conservation of Nature list six species – red, white, black, green, pink and flat abalone – as critically endangered and governments around the world police overfishing.
In South Africa, abalone is so valuable that it has earned the nickname “white gold”. The South China Morning Post reports that South Africa exports ~5,000 tonnes of abalone every year with most of it ending up in Hong Kong and neighbouring Asian countries. Of that ~5,000 tonnes, nearly half is poached. Estimates put South Africa’s illegal abalone trade between US$60-120 million.
The extent of illegal harvesting is so high that South Africa’s Department of Environmental Affairs project that at current rates their abalone resource will collapse within 10 years.
Don’t assume that abalone crime is a uniquely South African problem. The Australian Institute of Criminology estimates that one of the most well-known abalone poachers in Australia made more than $1 million a year.
Why is it such a valuable commodity? According to WA Today, abalone in China is associated with power and wealth. It is an expensive ingredient and some of China’s most recognised chefs have recipes featuring the mollusc. As a result, the majority of abalone grown around the world ends up in Hong Kong and mainland China.
As wild abalone stocks get depleted and to keep up with the world’s demand for abalone, the world has turned to abalone farming. From China to South Africa and a number of countries in between, you may find both onshore and offshore abalone farms. These days, more than 95% of the world’s abalone comes from aquaculture. Generally, these molluscs are raised in saltwater pens onshore or in suspended cages in the ocean. But one of the more novel abalone farmers is based in Australia, the home of the world’s first “sea ranch”.
Rare Foods Australia, which up until last year was named Ocean Grown Abalone, built a world-first artificial reef to grow their abalone. Situated ~300km south of Perth in Augusta, Western Australia this artificial reef is made up of 5,000 separate concrete abalone habitat units. Each of these units can host 400 abalone each. Young abalone are sourced from an onshore hatchery and added to the units. They are then left to grow for two to three years before reaching a marketable size.
Rare Foods Australia uses their artificial reef to grow the highly sought after greenlip abalone. According to the company’s 2022 Annual Report,
“Our abalone production now represents over 20% of the world’s supply of wild-caught Greenlip abalone. Wild-caught Greenlip abalone is a rare product, a gem of the ocean, highly sought after by leading chefs worldwide. It represents less than 1% of the world’s total supply of abalone. Using a wine analogy, this product is akin to the “Grange Hermitage” of abalone. Only 400 tonnes of this elite wild caught product will be fished globally next financial year. Of that 400 tonnes, 320 tonnes of the product will come from wild quotas (down 7% from 12 months ago), the rest will be supplied by us.”
Rare Foods Australia 2022 Annual Report
In the 2021 financial year, Rare Foods Australia achieved a record harvest of 75.9 tonnes of Greenlip Abalone which was sold across Australia, Europe and Asia. The company beat that record in the 2022 financial year, producing 81.7 tonnes.
The biggest question for Rare Foods Australia is scalability. While their sea ranch technology is unique, and has been recognised by the Marine Stewardship Council for its sustainability attributes, its size pales in comparison to Australia’s largest abalone farms producing hundreds of tonnes a year. Or China’s largest farms producing thousands of tonnes.
And so the company is looking to expand into other rare and unique foods (hence the name change). It’s trial – ocean-cellared wine. The company has taken wines produced in the local Margaret River region of Western Australia and matured them on the ocean floor.
Does that make for a better wine? We’ll reserve judgement until the company sends us a couple of bottles.
The numbers that matter
In a business like this, dive beyond the complexity of underwater ranching, global abalone criminal syndicates and the new concepts like underwater cellaring, and what you’re left with is a pretty simple business. You’re really left with two questions:
- How much can they produce an abalone for?
- How much can they sell an abalone for?
To get an understanding of that, we look at their gross margin (revenue minus cost to produce that revenue). And when it comes to Rare Foods Australia, 2022 was an interesting year. Outside of the COVID-interupted 2020, the past four years has seen gross margin in the mid teens, between 13% and 16%. Pleasingly in 2022 that more than doubled to 37%.
That is the most important number to watch going forward for a company like Rare Foods Australia.
If they can keep their cost to produce a tonne of abalone down while selling the abalone for more, then they’ll be generating more money to grow their business and perhaps expand their artificial reef.
Taking a look at some of the numbers from their annual report, you can see that their sales price per kilogram isn’t improving the way you would like.
| 2022 | 2021 | 2020 | 2019 | 2018 | |
| Price per kg | $48.67 | $43.31 | $46.25 | $55.63 | $53.90 |
To our mind, these are the numbers to watch. How much can they produce, what does it cost them to produce and what can they sell their produce for? Putting together those three numbers and tracking that over time will give you the key information you need to analyse a company like this.