Challenges as pearl coast loses its lustre

THE rich and prestigious tightly controlled Australian South Sea pearl industry which predominantly lies off WA’s North West “Pearl Coast” is facing one of its toughest challenges in more than a century.

The price of pearls has steadily declined over the past 10 years against rising high-tech production costs and the threat of over supply from growing new international competition.

Four cyclones in the past year and a half off the coast of Broome severely mauled many of the underwater farming systems. Treacherous seas devastated costly “spat”, the new hatchery produced young shell, while only in December many of the precious seeded pearl oysters, which take two years to grow, were irretrievably lost despite frantic Christmas salvage attempts, raising new uncertainties over the 2002 harvest.

Added to that comes increasing competition from Indonesia, Burma, Malaysia and the Philippines, Tahiti’s black pearl and China’s cheap freshwater pearls being produced by the tonne – all after a bigger slice of profits.

Among those issuing warnings for the industry is Nick Paspaley, the best known modern pearling master in the world, and executive chairman of the powerful Darwin and Broome Paspaley pearl family dynasty, whose firm controls about 60 per cent of the Australian market.

Speaking to Business News from Aspen, Colorado, winter playground of the rich and famous, Mr Paspaley said this decade the worldwide situation in the pearl industry would be quite different from the previous 10 years.

“The future prognosis for small pearl farming operations to produce pearls and profitably sell their production on the world market is not good,” he said.

“Today the pearl industry is very highly technical.”

Technology, is just one of a number of factors changing the pearl industry.

Until recently, the Australian industry was basically controlled by the Japanese cartels which bought all Australian South Sea pearls and were responsible for their world-wide distribution through auction and re-export.

Pearl Producers Association WA executive officer Mick Buckley explains: “Ten years ago traditionally all pearls went to the Japanese. They had a worldwide distribution system nobody else had.

“They were the authority on pearl value and pearls, and where they went. It was a convenience and everyone was happy. And then came the various economic downturns and people started to look at more efficient ways to sell.”

Japan still has a major chunk of the international market. But the new balance of control along with the freedom has brought with it new individual pressures to compete. The Australian industry recognises it is seriously “under promoted.”

Aggressive new marketing strategies, in the US and Europe as well as Asia to ensure Australia’s South Sea pearls continue to be recognised by the wealthiest consumers as the world’s finest and most coveted, will be “critical” to the future, most insiders say.

“Pearls are back on the list of fashionable, young, most wantable items,” Mr Buckley said.

“Fifteen years ago it would have been unthinkable to have to convince the world we are the best. Now it is compulsory we promote ourselves.”

What the industry has to create is an export image of excellence to give the Australian South Sea pearl instant recognition as the world’s best.

These are the pearls sold to connoisseurs – to the wealthy, old European family dynasties, the Asian nouveau riche, and celebrities for upwards of US $300,000-400,000 for a necklace of perfectly- rounded pearls.

Good strands of smaller but less perfect pearls can be bought by local consumers for $5000-$10,000 but almost 90 per cent of the 850,000 Australian grown pearls produced each year are sold overseas and in particular within the US where the biggest prestige market still lies.

Three quarters of Australia’s annual harvest will come from pearling grounds off the Kimberley coast and it is these pristine waters of the Indian Ocean that are credited as the reason for the superior quality, lustre and size of the Australian South Sea pearl.

While Australian pearl producers seem basically happy to be gettting more of a say in their own marketing, they still remain tightly controlled.

Pearl farming is indisputably the most “closed shop” secretive primary industry in Australia today with a total of only 16 licence holders and joint venturers producing an annual harvest worth an estimated $250-$300 million annually.

“There have been almost no new contracts allowed for 15 to 20 years. It is what we call a closed industry. You have to have permits and quotas to operate and there have been very few new licences given,” said Broome pearl dealer Bill Reed.

The licenses or quotas issued by WA Fisheries for pearl oyster fishing or pearl farming are almost impossible to obtain. The total quota for wild shell in South Sea pearls Australia-wide allowed to be gathered as breeding stock is 572,000 shell a year, of which 500,000 is in the Broome area. Generally one unit of quota translates as 1,000 pearl oysters.

The Australian industry is dominated by the powerful Paspaley conglomerate. Their giant white mother ship Paspaley III has for 11 years been a familiar part of the Broome horizon. Based on their huge Kuri Bay pearl farm – the world’s largest – at Brecknock harbour north of Broome, their pearling empire includes Paspaley Pearling Company Pty Ltd., Pearls Pty Ltd., Roebuck Pearls Pty Ltd., and Hamaguchi Pearling (formerley Broome Hamaguchi Gourdon Bay). In addition they have joint ventures with Cygnet Bay Pearls and Maxima Pearls.

Next largest come the Kailis family’s Broome Pearls which also owns Australia Sea Pearls and Exmouth Pearls. Also among the elite group are famous names like Arrow Pearl Co. Pty Ltd., Blue Sea Pearling Co., in which the old Broome Kinney family is associated, and smaller but solid newer companies like Clipper Pearls.

Former Broome pearl diver now pearling historian Richard Baillieu, of the famous Melbourne family dynasty, says: “The industry has had a massive transition. It was basically all controlled by the Japanese. Now we control our own markets and the farmer is getting a better deal – a better cut of the bickies.”

Until recently all pearl oysters destined for seeding were fished from wild natural stock by divers. Only since 1990 due to new technology, successful trials are resulting in numerous specialist hatchery reared “spat” or young shell – also subject to quotas – which are nurtured on the pearl farms until mature enough to be seeded.

“We have extremely efficient growing methods and animal husbandry that has improved dramatically. Despite some rem-unerations of at least ten times that in Indonesia and elsewhere, our costs per unit production are still very competitive which means we are very, very efficient,” said Mr

Reed, who has been associated with the pearling industry for almost 40 years

But, says Reed, “Marketing is going to be crucial for Australian pearls – just like de Beers did with their diamonds.”

Broome Pearls general manager, pearling operations, Chris Cleveland said prices were falling because cost structures had changed so much in the past five years.

Mr Cleveland said the industry was keeping a close eye on the growing Indonesian market, currently producing smaller yellowish gold South Sea pearls.

‘With Indonesian wages at 30 –40 cents a day you could run an entire farm for a year on the labour costs of one manager in Australia,’’ he said. But Indonesia also has a large security problem with industry workers murdered by pirates or thieves. One Australian investor had even been driven to pull out.

“If Indonesia, the Philippines and Burma solve their quality problems then the Australian industry could be in deep strife,” Mr Cleveland said.

Australian pearls are currently sold through just three main exporters – Paspaley, whose major partners and buyers are still Japanese, Kailis Broome Pearls, and Sydney pearl broker Pearlautore.

Paspaley still hold their grand traditional auctions twice a year in Hong Kong and Kobe, Japan, breathtaking occasions few outsiders ever see. Attendance is strictly by invitation only to the elite few dozen buyers who still dominate world distribution.

It is a hushed occasion with thousands of lustred South Sea pearls collectively worth a king’s ransom laid out on tables in the Hong Kong Convention Centre before buyers bidding by ballot.

Many players believe the highly efficient Australian operators must act now to stabilise world pearl prices and actively seek new clients to whom in future they may well choose to sell direct in the global market place.

Already the predicted changes cutting out the middle man are causing waves of disquiet in the market place.

“Many old loyalties are about to be tested,” says one key insider watching cautiously.

Paspaley have themselves created a formidable marketing operation.

Mr Paspaley’s sister, Marilynne, has herself become a major figure in promoting her family company with a glossy upmarket magazine and in Sydney retailing since 1990. There are current plans for them to set up a wholesale/retailing office for the first time in New York.

Citing the importance of the establishment of marketing and distribution systems, with emphasis on resource and development and new technology keyed to improving pearl quality and reducing costs, Mr Paspaley says: “I believe that only those organisations capable of achieving these goals will be successful in the future.”


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