Funding Options for the Sydney Rock Oyster Breeding Program

Purpose

The NSW oyster industry must commit to a pathway forward to fund the Sydney Rock Oyster breeding program (SROBP).

Issue

The SROBP costs the NSW DPIRD approximately $400,000 per year. Of this, approximately $15,000 - $30,000 per year is recovered from a service fee charged when industry purchase spat of breeding program broodstock origin. The shortfalls in funding must be addressed as ongoing DPIRD funding is not ensured and is contingent on a more significant industry contribution to maintain the program.

Industry should consider and commit to options presented in this paper to address the funding shortfall, to keep the program operational.

Background

The NSW Sydney Rock Oyster (SRO) breeding program has been running since the 1990’s and has an aim of increasing industry productivity, to provide management options to industry in the presence of oyster diseases and establish a platform to respond to future needs and threats such as climate change.

The current industry goal is to produce commercial oysters with an average estimated breeding value (EBV) of greater than 70% for spat survival through one QX disease outbreak and 30% faster growth without changing meat condition when compared to a wild oyster.

The latest selected lines on NSW DPIRD research leases from September 2022 show an average EBV of 80% for spat survival through one QX outbreak, 25% faster growth, and no change in meat condition compared to wild Sydney Rock Oysters. The program will build the industry’s resilience to disease and is considered a biosecurity necessity and an insurance policy.

The program is largely dependent upon NSW government funding, with a service fee of $3 per 1000 oyster spat charged to industry for oysters produced using breeding program broodstock.

The NSW DPIRD annual production returns estimate that currently in NSW around 100 million spat are produced annually, from which around 65 million adult oysters are subsequently harvested for market, with some losses along the way during production. Of these spat only around 5 – 10 million are hatchery-produced from the NSW SRO breeding program broodstock lines, and of the remaining 90-95 million spat, approximately 5 million of these are produced by hatcheries from wild-caught broodstock (i.e., not breeding program broodstock). The remaining majority are wild caught by oyster farmers. Thus, the NSW industry contribution currently to the breeding program is relatively small at around $15,000 -$30,000 compared to a government contribution to the program in the order of $400,000 pa.

The NSW Shellfish Committee set up the SRO Breeding Program Reference Group in 2021 as a subcommittee with a Charter to consider alternative funding options for the program.

Options considered

The Reference Group has met 12 times over the last few years. During that time has developed and reviewed a number of options. These are shown in the Appendix.

Options that have been reviewed have included:

Maintaining the existing model with possibly a slightly larger industry service fee
Selling and / or licencing the broodstock to hatcheries / business
A collaboration model whereby NSW DPIRD works in collaboration with specific private companies in a partnership arrangement
Sell the whole breeding program and NSW DPIRD exits breeding
Industry fund, in its entirety, the breeding program through increased service fee(s) and charges applied to all farmers. No government funding would be received.
A so-called Hybrid model whereby some funding is maintained from the NSW government and the funding from industry is a mixture of the service fee component and a charge applied to all farmers through either a permit holder fee or a hectarage fee. This Hybrid model is the leading candidate option.

Risks considered

At the February 2024 Shellfish Committee meeting the NSW government committed $250,000 per annum for the breeding program for the next two years. Combined with the current income from the service fee and leverage from grants and research contributions, the program is funded for two years.

Beyond two years there is no commitment from NSW government. The Hybrid model is therefore based on an industry contribution increasing at that time.

Recognising that government has acknowledged that its intent is to continue funding research on climate change resilience and disease protection breeding aspects, the Hybrid model is assuming that $250,000 government contribution will continue if industry also commits to increasing its contribution.

The Hybrid model has considered levels of government contribution, levels of the whole of industry contribution, and the contribution from the service fee including increasing the service fee. Some of the options modelled are shown in the appendix to demonstrate the modelling approach that’s been applied.

The numbers

The one aspect that became apparent when modelling the levels of contributions from each of the components of the Hybrid model is that the budget typically does not ‘stack up’ until the program is producing and selling somewhere in the region of 30 – 40 million spat per year. At lower production levels there will be a funding gap, which may require considerable government contribution balance the budget, which may not be available.

The example below displayed in the graph and spreadsheet is the Hybrid model showing a balanced budget. This model has the service fee going up from $3/1000 spat to $4/1000 spat, a whole of industry contribution of $100,000 per annum and a government contribution of $250,000 per annum.

The industry contribution of $100,000 per annum could be charged on a per hectare, or on a per permit holder basis. Costs could range from about $35 per hectare, or a fixed cost of around $400 per permit holder to cover about 25% of breeding program costs. This is on the basis that the program acts as a whole of industry biosecurity and disease risk ‘insurance policy’. On the basis of this Hybrid model proposal, the program would fund itself at a production level of 12.5 million spat, as indicated in the budget table and chart below.

Other variable rates and contributions have been considered. For example, if a higher NSW government contribution was available, and decreased commensurate with increased spat sales was considered as indicated in the budget table and chart below.

Furthermore, interstate sales are currently minimal thus have little bearing on the proposed Hybrid model. It is recommended the spat service fee on interstate sales should be set at a higher level given that interstate purchasers will not be contributing to the proposed NSW fixed contribution. Therefore, it is proposed that the spat service fee for interstate sales should be set at $6/1000 spat.

As a condition of the Hybrid model, NSW DPIRD will produce breeding line brood-stock spat ex-hatchery for industry nursery rearing, assist with the nursery and lease rearing before distribution to Industry via an ‘Access Policy’ or equivalent for distribution of broodstock.

The Reference Group supported the Hybrid Model conditional to:

That the broodstock supply issues will be addressed. The Reference Group did not consider it justifiable to charge industry if there were significant impediments to broodstock supply.
A technical review of the breeding program be undertaken to identify known impediments and opportunities for growth and/or efficiencies (see Technical Review section below).

Review of the Hybrid model

The Hybrid model would be reviewed annually, or as required. Triggers for review would be established, for example but not limited to: if any grants are received; if a profit is generated; or other circumstances arise that would change income to the breeding program. The fixed cost to the industry would be reconsidered first.

Any review would be considered by NSW Aquaculture Research Advisory Committee and the NSW Shellfish Committee, and other industry representative committees / groups are required at the time.

Technical Review

An independent Technical Review is being planned (see Appendix 5). The objective of the Technical Review will be to inform necessary changes to the technical aspects of the breeding program to meet future needs. The breeding program is close to achieving breeding goals that were established ten years ago. Those goals were: an average estimated breeding value (EBV) of 70% for spat survival through one QX outbreak, 30% faster growth, and no change in meat condition compared to wild Sydney Rock Oysters.

Environmental conditions and increased influence of climate change impacts requires a review of the breeding goals to meet industry priorities. The Technical Review will inform NSW DPIRD breeding practices to achieve new breeding goals while maintaining the gains already established. As has been the case in the past, changes of this nature have been accompanied by independent reviews of program progress and the needs moving forward.

Extension plan and communications

The consideration of the Hybrid model has been communicated to industry via:

The Sydney Rock Oyster Breeding Program update April 2024 sent to all oyster aquaculture permit holders via post, and published on the NSW DPIRD website in April 2024.
The NSW Shellfish Committee meeting summary or outcomes 28 February 2024
OceanWatch NSW Oyster Newsletter March and May 2024 editions.

NSW DPIRD have engaged with a group of industry members who have cultivated Sydney Rock Oyster breeding program stock before and are happy to be contacted about their experience with the stock. These growers are:

Kel Henry Wonboyn Oysters 0477 054 590
Angela Riepsamen Goodnight Oysters Crookhaven and Shoalhaven 0488 472 111
Robert Hill Endeavour Oysters Georges River 0402 442 002

The Sydney Rock Oyster Reference Group may also be able to answer any questions:

Todd Graham oyster farmer Macleay River 0431 353 717
Gavin Partridge Harvest Road WA 0419 193 760
Ian Duthie Sea Perfect Tasmania and NSW 0409 411 322
Justin Welsh East33 0418 661 450
Curtis Lind CSIRO 0477 032 093
Andrew Williamson
Pip Boyton Australia’s Oyster Coast 0498 880 435
Brandon Armstrong, Armstrong Oysters 0427 924 999
James Brown Broken Bay Pearls 0427 924 999
Kim Weston Sea Gen Aquaculture 0400 105 320
Robert Redmayne East Coast Oyster Nursery 0421 382 106
Jason Murray Victorian Shellfish Hatchery 0419 098 446
Shane Buckley Wapengo Rock Oyster Company 0408 866 211
John Wright Tasmanian Oyster Co 0449 754 115
Peter Kube, former CSIRO 0400 050 922
Stephen O’Connor Mollusc Hatchery Manager DPI Fisheries 0468 781 390
Laura Parker Senior Fisheries Scientist DPI Fisheries 0438 354 637
Emma Wilkie Senior Policy Office Aquaculture DPI Fisheries 0428 764 310
Mark Boulter Chair 0405 437 458

What happens next

Industry consultation will be available via the online survey. The input received from industry will be discussed at the NSW Oyster Conference 2024, 4-5 September at Port Macquarie.

NSW DPIRD will consider all submissions made and make a recommendation of the appropriate next steps based on the outcomes of the consultation period. Industry will be informed of the consultation outcomes and next steps.

Revision history

Version	Date	Notes	Key changes
1.0	1 February 2024	Endorsed at Sydney Rock Oyster Breeding Program Reference Group meeting #9 on 1 February 2024. Endorsed by Shellfish Committee at meeting on 28 February 2024.	Original paper developed over 18months by the Sydney Rock Oyster Breeding Program Reference Group.
2.0	17 April 2024.	For endorsement at the Sydney Rock Oyster Breeding Program Reference Group meeting #11. If endorsed, the industry will be surveyed on the Hybrid model option.	Title change to remove reference to the Reference Group for a more generic working document. Inclusion of the consideration of interstate spat sales. Model options considered a fixed two-year contribution of $250,000 from NSW government instead of a variable (slightly decreasing) contribution. Inclusion of revision triggers.
3.0	8 May 2024	Endorsed by the Sydney Rock Oyster Reference Group meeting #11. Editorial changes were made in accordance with action items from that meeting.	Clarification around risk of not proceeding with alternative funding models. Inclusion of a broodstock ‘Access Policy’ or equivalent. Inclusion of the need for any revision to the Hybrid model to be endorsed by ARAC, Shellfish Committee and/or other relevant industry representative bodies. Inclusion of information about the Technical Review program. Inclusion of and extension plan.
4.0	29 May 2024	Reviewed by NSW DPIRD Aquaculture Mollusc Research team.	Editorial changes for clarification of technical specifications.
5.0	18 July 2024	Reviewed by NSW DPIRD.	Editorial changes in line with new department structure.

Appendix 1

Options arising from previous meetings deliberations:

Model	Business Model	Revenue Model	Pros	Cons
Existing model
Existing model (aka service fee model)	NSW DPIRD produce, own and manage selected lines of SRO broodstock, and loan it to hatcheries on request for commercial production runs, subject to a Material Transfer Agreement. Breeding program costs funded by NSW DPIRD (breeding runs and performance tests)	NSW DPIRD charge a service fee ($0.3c/spat) at the time the hatchery translocates the spat, which is spawned from broodstock, from the hatchery to nurseries and/or farmers. Generally, spat is 1mm retained at the time of translocation. Service fee used to offset NSW DPIRD costs of running the breeding program.	Existing system, we know how it works. Potential to generate enough revenue. NSW DPIRD control of breeding program IP.	High risk, beholden to third party (i.e., hatchery) production and honesty system. Revenue not received at point of product exchange. Complex. High risk managing broodstock that might not generate revenue. NSW DPIRD commitment to this model has a time limit.
Alternate models considered
Sell and/or licence broodstock	NSW DPIRD produce broodstock. NSW DPIRD sell broodstock to anyone (hatcheries, farmers, businesses large and small) including other jurisdictions interested in improved Sydney Rock Oysters. NSW DPIRD could limit the number of ‘broodstock packages’ available for industry to purchase (e.g., offer 3-5 broodstock packages). Price for packages could be set or a tender process for packages is conducted. OPTION: broodstock sold to NSW permit holders only.	NSW DPIRD charge for broodstock. Product options might be: - family combinations - premium for popular families -premium for mature oysters - premium for exclusivity - auctions/ballots	Lower risk than current system where DPIRD would not be holding broodstock (for as long). Revenue generated at the time the NSW DPIRD product (i.e., broodstock) is exchanged. Economies of scale. Simpler than current system. Growers, hatcheries have more control of product, trait selections and business transactions with each other. ‘Broodstock packages’ could be sold as spat. This would reduce the cost for NSW DPIRD to rear stock to a mature size. The onus would be on owners of broodstock to condition stock and/or contract a hatchery for multiplication if it wasn’t a hatchery that purchased stock in the first place. Broodstock only sold for production of edible oysters for sales. Not allowed to supply to third parties (e.g., for research purposes). This would allow broodstock to be used by NSW DPIRD for other purposes (eg reef restoration) and collaborators will come to NSW DPIRD and not those who have purchased and hold broodstock.	Potential loss of control of IP (particularly if companies retain broodstock for future seasons). Potential loss of industry ownership if big companies outcompete smaller companies. Potentially unviable if cost of broodstock is out of reach. Other states accessing improved genetics without investment in development of the breeding program. Requires continual stock improvement so that broodstock purchasers keep coming back to acquire and pay for new/latest batches so there is ongoing revenue into the future for the breeding program.
Collaboration model	NSW DPIRD collaborate with private companies.	Options such as direct buy-in / investment. NSW DPIRD could put a call out for Expressions of Interest.	Lower risk than current system. Greater investment in current program, enable growth and leverage opportunities.	Negotiation, potentially less revenue for NSW DPIRD. Not as simple a model as some others. Requires more work to establish this structure than other methods.
Sell breeding program	NSW DPIRD sell all broodstock, IP, and rights to the breeding program. NSW DPIRD exits the breeding program. This could arise from a change in NSW DPIRD strategy.	One off lump sum. NSW DPIRD could put a call out for Expressions of Interest.	Lowers risk and costs to NSW DPIRD. Potential large immediate profit. NSW DPIRD costs of running breeding program channelled elsewhere.	Loss of industry ownership of the breeding program. Loss of gains and research partnerships where a buyer is not diligent with breeding protocol. Very hard to recover (back to square one) if it goes wrong. Finding the right buyer(s). NSW DPIRD loses research opportunities and revenue that arise from controlling and managing the breeding program.

Model

Business Model

Revenue Model

Pros

Cons

Existing model

Existing model

(aka service fee model)

NSW DPIRD produce, own and manage selected lines of SRO broodstock, and loan it to hatcheries on request for commercial production runs, subject to a Material Transfer Agreement. Breeding program costs funded by NSW DPIRD (breeding runs and performance tests)

NSW DPIRD charge a service fee ($0.3c/spat) at the time the hatchery translocates the spat, which is spawned from broodstock, from the hatchery to nurseries and/or farmers. Generally, spat is 1mm retained at the time of translocation. Service fee used to offset NSW DPIRD costs of running the breeding program.

Existing system, we know how it works. Potential to generate enough revenue.

NSW DPIRD control of breeding program IP.

High risk, beholden to third party (i.e., hatchery) production and honesty system.

Revenue not received at point of product exchange.

Complex.

High risk managing broodstock that might not generate revenue.

NSW DPIRD commitment to this model has a time limit.

Alternate models considered

Sell and/or licence broodstock

NSW DPIRD produce broodstock.

NSW DPIRD sell broodstock to anyone (hatcheries, farmers, businesses large and small) including other jurisdictions interested in improved Sydney Rock Oysters.

NSW DPIRD could limit the number of ‘broodstock packages’ available for industry to purchase (e.g., offer 3-5 broodstock packages). Price for packages could be set or a tender process for packages is conducted.

OPTION: broodstock sold to NSW permit holders only.

NSW DPIRD charge for

broodstock.

Product options might be:

- family combinations

- premium for popular families

-premium for mature oysters

- premium for exclusivity

- auctions/ballots

Lower risk than current system where DPIRD would not be holding broodstock (for as long).

Revenue generated at the time the NSW DPIRD product (i.e., broodstock) is exchanged.

Economies of scale.

Simpler than current system.

Growers, hatcheries have more control of product, trait selections and business transactions with each other.

‘Broodstock packages’ could be sold as spat. This would reduce the cost for NSW DPIRD to rear stock to a mature size. The onus would be on owners of broodstock to condition stock and/or contract a hatchery for multiplication if it wasn’t a hatchery that purchased stock in the first place.

Broodstock only sold for production of edible oysters for sales. Not allowed to supply to third parties (e.g., for research purposes). This would allow broodstock to be used by NSW DPIRD for other purposes (eg reef restoration) and collaborators will come to NSW DPIRD and not those who have purchased and hold broodstock.

Potential loss of control of IP (particularly if companies retain broodstock for future seasons).

Potential loss of industry ownership if big companies outcompete smaller companies.

Potentially unviable if cost of broodstock is out of reach.

Other states accessing improved genetics without investment in development of the breeding program.

Requires continual stock improvement so that broodstock purchasers keep coming back to acquire and pay for new/latest batches so there is ongoing revenue into the future for the breeding program.

Collaboration model

NSW DPIRD collaborate with private companies.

Options such as direct buy-in / investment.

NSW DPIRD could put a call out for Expressions of Interest.

Lower risk than current system.

Greater investment in current program, enable growth and leverage opportunities.

Negotiation, potentially less revenue for NSW DPIRD.

Not as simple a model as some others.

Requires more work to establish this structure than other methods.

Sell breeding program

NSW DPIRD sell all broodstock, IP, and rights to the breeding program.

NSW DPIRD exits the breeding program.

This could arise from a change in NSW DPIRD strategy.

One off lump sum.

NSW DPIRD could put a call out for Expressions of Interest.

Lowers risk and costs to NSW DPIRD.

Potential large immediate profit.

NSW DPIRD costs of running breeding program channelled elsewhere.

Loss of industry ownership of the breeding program.

Loss of gains and research partnerships where a buyer is not diligent with breeding protocol.

Very hard to recover (back to square one) if it goes wrong.

Finding the right buyer(s).

NSW DPIRD loses research opportunities and revenue that arise from controlling and managing the breeding program.

Appendix 2

Retaining the $3/1000 spat service fee with a $100,000 industry contribution. Breakeven is at 16.6 million spat sold.

Appendix 3

No industry fixed contribution while increasing to a $6/1000 spat service fee. Breakeven is at 25 million spat sold.

Appendix 4

No industry fixed contribution and maintain the $3/1000 spat service fee (aka status quo). Breakeven is at 50 million spat sold.

Appendix 5: Technical Review Terms of Reference

Technical Review of the Sydney Rock Oyster Breeding Program

The Sydney rock oyster breeding program has now been in operation for over 30 years, during which it has undergone several fundamental changes in both the goals of the program and the methods used to achieve them. The program is rapidly approaching another period of change. Previous selection goals for growth, disease resistance, and condition are about to be achieved. NSW DPIRD’s focus for ongoing research into breeding line development will centre on disease resistance and climate change, while the potential for genomic selection is now undergoing evaluation. As has been the case in the past, changes of this nature have been accompanied by independent reviews of program progress and the needs moving forward.

This review is not intended to cover matters relating to the governance of the program.

NSW DPIRD is looking for an independent expert/s to work with the Sydney Rock Oyster Breeding Program, Technical Committee to:

1. Review current breeding program practices and procedures, such as family production (including numbers of families), family hatchery practices, family field deployments, measurement taken, genetic analyses, data management, management of the overall breeding population, and any other procedures directly related to the implementation of the breeding program.

2. Review the current breeding objectives, breeding goals, and selections traits with reference to the feedback provided by the various stakeholders.

3. Review the procedures in place for broodstock supply for commercial propagation with reference to the feedback provided by the relevant stakeholders.

4. Engage with NSW DPIRD to determine departmental needs from the breeding program.

5. Engage with the Sydney Rock oyster reference group to determine commercial needs from the program.

6. Engage with key hatchery suppliers to determine commercial needs from the program.

7. Review the genetic progress of this breeding program and comment on the success of the program relative to realistic expectations.

8. Advise on changes to the operational structure of the program required to meet the emerging business needs identified above.

9. Advise on the implications of potential changes to selection technology in the operation of the breeding program.

10. Review the scientific understanding and knowledge base that supports this breeding program and identify any knowledge gaps that require research.

The reviewer should outline in their tender how they intend to carry out the review meetings related to this review, whether they would be conducted face-to-face, online or some mixture of these two methods.

The reviewer would be expected to provide a written report addressing the above criteria within 3 months of the commencement of the project. The reviewer will be expected to present the results to the SRO Reference Group and answer questions.