The inconvenient truth behind the ‘out-performed’ Dongwon Industries
Preface:
This report is released for public interests. It studies the problems existing in tuna fisheries, analyses
the potential risks arising from fishing in the industrial scale, and figures out the consequent impact
on fisheries and our environment. The subject company of this report has been used as an example
to illustrate such problems and risks for the Korean tuna industry, and by extension, to the distant-
water fishing fleets worldwide.
Disclaimer:
- The sources of all the data and information quoted in this report are from, and our understanding
of, public materials that we consider reliable; Greenpeace does not guarantee its timeliness, accuracy
and integrity.
- The findings in this report are the results of the independent research, analysis and study
conducted by Greenpeace East Asia on the basis of the information acquired within the time limit
of such research, analysis and study.
- The report is used only for the purposes of information sharing and reference, environmental
protection and public interests. If you want to use or apply the information in the report, you may
need do your own study and use your own judgement to make decision, and bear the arising risk
from using or applying such information.
For any enquiry on the report, please contact:
Elsa Lee
Senior Business Advisor, Greenpeace International - Political and Business Unit
Email: [email protected]
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Contents
1. Executive Summary 2
2. Introduction 4
3. Future of the tuna fisheries 6
4. Changing political landscape – increased regulatory risks are imminent 10
5. Environmental impacts 12
6. Emergence of consumer concerns and market restrictions 14
7. Bad management and lack of standards in overseas operations 17
8. Conclusion 19
References 20
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Dongwon Industries Company Limited’s (006040 KS) recent history shows signs of a bubble. Its
share price has almost doubled over one year, driven by aggressive growth plans and supported
by risky acquisitions and a five-fold increase in capital expenditure.
These aggressive growth plans are built on the assumption of unlimited stocks from a single natural
resource, Pacific tuna, on which Dongwon Industries is heavily reliant for its revenue. Fast decreasing
tuna stocks due to overfishing, and recent fishery management rules that aim to conserve the
stocks, are combining to make tuna prices high and volatile, lead to clear supply and financial risks
in both short and long term for the company (Section 3).
The company’s profitability has deteriorated during the last few months, e.g. its EBITDA margin fell
from 23% to 15% between Q1 2012 and Q1 2013. Its debt structure is not ideal, with around KRW
257B (approx. USD 230M) in short term debt expiring in 2014.1
1. Executive Summary
© HungKu Kim / Greenpeace
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2
The financial fundamentals of Dongwon Industries show it is a high growth company. However,
investors should be mindful of whether the company has sufficiently disclosed and adequately
adapted its business plans for the forthcoming tighter regulatory environment, both within South
Korea and internationally (Section 4).
With the company aiming to expand into US and European markets, investors should also take
note of the increasing consumer demand for sustainable seafood products, in particular canned
tuna. This demand poses market risks for Dongwon Industries, and its associate Dongwon F&B, if
the companies cannot adapt to the sustainability standards (Section 6). As recently as April 2013,
Dongwon Industries has also been under pressure from the media and authorities regarding its
appalling business ethics in its African operations (Section 7).
As a household name in South Korea, is Dongwon Industries able to prove that it can operate
internationally, and adapt its business plan to a foreseeably fast changing natural-regulatory-
consumer environment? For shareholders and investors, would the company be able to manage
the major risk of stranded fishing and processing assets if the external business environment turns
against it?
Investors buying Dongwon Industries shares may face the following significant risks:
Supply risks tuna stocks: long-term downward trend in tuna populations
immediate: fish aggregating device (FAD) ban, constraints from the
Parties to the Nauru Agreement (PNA) in H2 2013
Price risks increasing volatility of raw material prices
Financial risks assets stranded as cheap tuna supply ends and demand shifts to
sustainable products
Regulatory risks domestic: Korean government amendment of the Ocean Industry
Development Act to make companies operating in distant water
fishing more accountable
international: WCPFC/PNA conservation measures
Governance risks Liberian government investigation, leading to USD2M settlement for
illegal fishing activities and perhaps other activities yet to come to
light
Reputational risks criminal proceedings in Senegal for cannery acquisition, illegal
fishing on Liberian coast, Korean Tax Service investigation.
3
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2. Introduction
The world’s ocean is reaching its limit in providing wild-caught seafood for human needs. According
to FAO, 87.3% of the world’s assessed fish stocks are over- or fully-exploited, which means these
stocks have reached or exceeded their maximum potential to produce a sustainable yield (Figure 1).2
As one of the most globally traded seafoods, tuna is facing serious risks of stock depletion after a
significant increase in production since the 1980s. Such a dramatic boom of tuna fishing business
is based on the unfounded assumption that there are unlimited fish in the ocean. Section 3 explains
the worrying signs for fisheries resources and the future resource risk that investors should be
aware of when investing in the fishing business.
70
Percentage
60
50
40
30
20
10
0
1974 1979 1984 1989 1994 1999 2004 2009
Fully exploitedNon-fully exploited Overexploited
Figure 1. Global trends in marine fish stock status from 1974 to 2009. Source: FAO (2011) Review of world marine fisheries
© Alex Hofford / Greenpeace
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Aggressive business models built on a fast depleting resource and underlying risks
Three companies/groups dominated the canned tuna sales in South Korean: Dongwon F&B (a subsidiary
of Dongwon Enterprise) accounts for 69.8% of market share, selling mostly the catch of sister company,
Dongwon Industries. Sajo Industries has the second largest share with 16.5%. The third largest brand,
Ottogi, which sources tuna mainly from Silla Co. Ltd., takes 13.1% of the canned tuna market.
However, there are significant risks for companies that are heavily dependent on tuna resources for
their business model. Dongwon Industries and Dongwon F&B are particularly vulnerable.
Dongwon Industries reported total revenue of KRW 1,544B (USD 1.37B) at end 2012, with the tuna fisheries
and its distribution sectors contributing almost 90% of the revenue. The company follows a very aggressive
expansion strategy, and has been investing heavily in recent years. After acquiring StarKist, a leading brand
in the US market, for USD 363M in 20085 with a hefty loan, Dongwon Industries also acquired the largest
cannery in Senegal with KRW 5.4B (approximately USD 4.8M) in 2012. It is planning to invest a further USD
21M in upgrading the facility,6 and to expand into the US and European markets as domestic sales slow.
The company ordered two purse seine fishing vessels in 2012, each estimated to cost around
USD 22.3M. This was ahead of a restriction by the International Seafood Sustainability Foundation
to limit fishing capacity in order to stop unsustainable and uneconomical build of more purse
seine fishing capacity.7 Such heavy dependence on and investment into tuna assets could pose
significant financial risk to the company in terms of stranded assets, and regulatory risk as the
regulatory framework around tuna resources is tightened (see Section 4). As the market for high
standard sustainable product becomes the norm in international markets, Dongwon exposes itself
to the market risk of not providing sustainable product to fit with this growing demand (Section 6).
Investors should also be mindful of the governance and management risks of Dongwon Industries.
While the company may have performed well financially, its unethical business behaviour, especially in
developing countries, poses a significant reputational risk to the company and its investors (Section 7).
Percentage5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
01950 1960 1970 1980 1990 2000
100
90
80
70
60
50
40
30
20
10
01950 1960 1970 1980 1990 2000
Figure 2. World tuna catch by country in weight (in million tonnes – left panel) and share (right panel), 1950 – 2007. Source: FAO (2010) Recent developments in the tuna industry. industry.
Others
France
U.S.A.
Ecuador
Nowhere else indicated
Republic of Korea
Spain
Philippines
Indonesia
Taiwan Provice of China
Japan
Asian countries dominate the tuna fisheries catches. South Korea ranked sixth in overall world tuna
catch (Figure 2), and third largest in terms of distant-water catch, with a total of 251,093 tonnes of
tuna caught in 2011.3 As part of a staple family diet, South Koreans consumed significantly more
canned tuna than other Asian countries - around 260 million cans of tuna a year. The market is
worth around USD 370M.4
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3. Future of the tuna fisheries
After decades of large-scale industrial fishing, the ocean has reached a point where, due to overfishing,
it can no longer supply the increasing demand for seafood. The world’s wild marine capture fisheries
peaked in the 1990s and have been in decline since the 2000s (Figure 3), with the marine capture
production reaching 79 million tons in 2010.8 This is despite an increasing fishing fleet and improved
technology to find and catch fish. Figure 4 illustrates the dramatic decrease of catch per vessel and
catch per unit capacity against the increase of decked vessels and fishing power since the 1970s.9
While scientists and conservation groups have been stressing the importance of healthy oceans
and fisheries for many years, the macro and micro-economic impacts of overfishing are only slowly
being recognised by economists and the business community. In 2009, the World Bank estimated
the lost economic benefits of the world’s marine fisheries due to mismanagement to be in the
order of USD 50B annually, with more than 75% of the fish stocks underperforming in 2004.10 The
investment community has raised concerns about the risks for businesses that have a direct or
indirect dependence on marine fisheries.11
90
Million tonnes
60
30
0
50 55 60 65 70 75 80 85 90 95 00 05 10
Figure 3. World marine capture fisheries production since 1950. Source: FAO (2012) State of world fisheries and aquaculture.
© Greenpeace / Paul Hilton
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Figure 4. Evolution of Global Fleet Productivity. Source: The World Bank and FAO (2009) The Sunken Billions – the economic justification for fisheries reform.
140
120
100
80
60
40
20
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1970 20051980 1985 1990 1995 2000
Num
ber o
f dec
ked
vess
els/
fleet
cap
acity
inde
x (f
ishi
ng p
ower
) (m
illio
n)
Cat
ch p
er v
esse
l/cat
ch p
er u
nit c
apac
ity (t
ons)
Decked vessels (number)
Fleet capacity index (fishing power)
Catch per vessel (tons)
Catch per unit capacity (tons)
A collapse of the tuna resource is looming
Tuna, being one of the most traded seafood globally, has been the focus of many large multi-national
companies, in particularly from Asia. However, the future existence of these fishing companies are
in questions as tuna stocks worldwide are declining, with most tuna stocks supplying both canned
and sashimi markets being classified by the FAO as fully exploited or overexploited.12 Around 60% of
global tuna catch are from the Western and Central Pacific Ocean (WCPO), the key fishing grounds
for the Korean tuna industry. Scientists reported the lowest catch since 2005 at 2.24 million tons in
2011, which represents a 12% drop in volume from the record catch in 2009 (Figure 5).13
Figure 5. Catch of albacore, bigeye, skipjack and yellowfin tuna in the Western Central Pacific area by different gear types. Source: WCPFC Scientific Committee (2012). Overview of tuna fisheries in the Western and Central Pacific Ocean, including economic conditions – 2011.
2,800,000
Catch (mt)
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2,400,000
2,000,000
1,600,000
1,200,000
800,000
400,000
0
PURSE SEINE
OTHER
POLE-AND-LINE
LONGLINE
Source:Author’s calculations; Garcia and Newton (1997); FAO Fishstat Plus;FAO FIEP
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The fishery resources in WCPO is estimated to be worth approximately USD 5B annually.14 Bigeye
tuna aside, tuna stocks in the WCPO are considered to be in ‘relative health’ compared to other
ocean regions. However, there are uncertainties around stock assessments due to the nature of
‘mixed fishing’ (catching more than one species in the net), especially from the fish aggregating
devicei-associated purse-seine fisheries. More cautious management measures are needed for
commercially important tuna stocks in order to capture their value and to ensure the long-term
supply of the resource.
Climate factors affecting tuna catch Besides the impact of industrial scale fishing on the volume of tuna catch, global and regional
climate factors are affecting the volume and location of tuna catch in the Pacific Ocean. It is well
known that the El Niño-Southern Oscillation affects the migration of skipjack tuna along the water
column as well as across the Pacific.15 In addition, global climate change would have a long-lasting
effect on the water temperature and hence the occurrence of many species of tuna.16 When fishing
pressure and climate impacts drive tuna further out into the ocean, away from easily accessible
and productive fishing grounds that foreign fishing fleets are currently depending on, economic
constraints will no doubt make the model of high capital tuna fishing unattractive in the future.
Unfortunately, fishing companies are ignoring the science and opting for a short-term approach
to tuna fishing, investing heavily in building their fleets and capacity aiming to catch tuna in the last
remaining stock in the Pacific. The collapse of tuna stocks is unavoidable if the current race for fish
continues.
Box 1. Dependence of Korean fishing industry on tuna Key Korean fishing companies are highly exposed to the risk of collapse of tuna stocks, as
their business models are heavily dependent on the future existence of and access to tuna.
Data from the Korean Overseas Fisheries Association (KOFA) show that, out of the top 10
tuna fishing companies, tuna comprises more than 80% of the overseas catch of the three
largest (Dongwon Industries, Silla, and Sajo) (Figure 6). Dongwon Industries is by far the
largest fishing company in Korea, catching 130,000 M/T of mainly skipjack tuna in 2011,
which represents about 84% of its total catch in the year.17 It supplies raw material to its food
processing affiliate Dongwon F&B. Silla, which supplies Ottogi, is 100% dependent on tuna.
i The use of Fish Aggregating Devices (FADs) is an unsustainable fishing practice that attracts a range of marine life including
juvenile tuna, sharks, rays, other fish, sea turtles and marine mammals, which are then all caught in the purse seine nets.
See Section 5 for more information on the environmental impacts of fishing practices.
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Figure 6. Catch of top 10 Korean fishing companies for 2011, and their dependence on tuna catches. Data source: Korean Overseas Fisheries Association (2012)
160,000
120,000
80,000
40,000
0
Dongw
on In
dustr
ies C
o.,Lt
dSil
la Co
., Lt
d
Sajo
Indu
stries
Co.
, Ltd
Insu
ng C
orpo
ratio
nDon
gnam
Co.
,Ltd
Sajo
Oya
ng C
o., L
td
AGNES Fi
sher
ies C
o.,Lt
d
Dongw
on Fi
sher
ies C
o.,Lt
d
Hansu
ng E
nter
prise
Co.
,Ltd
Nambu
k Fish
eries
Co.
,Ltd
Other catchTuna catch
Investor risk:
• Dongwon Industries’ heavy reliance on tuna resource for its recent expansions poses serious long-term financial risks.
• Stranded assets and diminishing returns on investments are unavoidable when the tuna catch falls or when the tuna moves away from current fishing grounds.
9
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For decades, fishing fleets from developed countries have been attracted to the rich tuna resources
in the WCPO, taking an estimated 80% of the Pacific tuna catch, that remove large parts of this key
food source and one of the principal economic resources from the region.ii Unlike in other oceans,
most tuna fishing takes place in the Exclusive Economic Zones (EEZs) of the Pacific island countries,
and fishing partners need to negotiate access agreements to fish in these EEZs. The benefits that
Pacific Island countries derive from tuna fisheries mostly comprise fishing access fees, and until
recent times these fees have represented only about 6% of the first landed value of the catch.18
Some Pacific Island countries have formed sub-regional bodies to address the inequity of this
situation and to further their aspirations for developing their domestic commercial fisheries. The
purpose is to better manage their tuna resources and retain a greater share of the benefits from
the fishery. As these sub-regional blocks become more influential and effective, foreign fishing
companies are forced to comply with increasingly stringent regulatory measures in exchange for
fishing in these countries’ EEZs, or risk being excluded.
4. Changing political landscape – increased regulatory risks are imminent
Parties to the Nauru Agreement (PNA)
Figure 7. Map of the Western and Central Pacific Ocean.
Established by eight Pacific Island countries in 1982,iii the Parties to the Nauru Agreement (PNA)
controls over 14 million square kilometres of the WCPO and is a driving force for improving the
management of the region’s tuna resource. The area covered by the PNA supplied approximately
1.4 M/T of tuna in 2010 (about 30% of global supply).19 The PNA has introduced measures such as:
ii Countries like Japan, China, Taiwan, Korea, the US and the European Union all have distant water fishing fleets operating
in the area. These countries are also members of the Western and Central Pacific Fisheries Commission (WCPFC), and
due to their vested interests in the tuna industry have been blocking sustainability measures being passed in the WCPFC.
iii PNA members are the Federated States of Micronesia, Kiribati, Marshall Islands, Nauru, Palau, Papua New Guinea,
Solomon Islands and Tuvalu
MarshallIsland
Federated States of MicronesiaPalau
Paopua New Guinea
TuvaluSolomon Islands
Kiribati
NauruKiribati
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Reform of the South Korean distant water fisheries regulation
In January 2013, the Korean Ministry of Oceans and Fisheries (MOF) proposed a review of the Ocean
Industry Development Act and its related human rights issues for foreigners crewing on the distant water
fleet.23 While traditionally the Act has focused on government support to the Korean distant water fishing
industry, public awareness of the behaviour of the country’s distant water fishing fleet has caused the
current review to expand its scope into responsible management and sustainable fishing practices.
Greenpeace East Asia’s input to this process was a report called “South Korean Distant Water Fisheries:
illegal, unreported, unregulated (IUU) – and tarnished by human rights abuses”.24 It documented 34
IUU scandals involving South Korean-flagged or South Korean-owned vessels flying another flag. The
report was discussed at a meeting of the Standing Committee of Foreign Affairs on 10 April 2013, and
was released at a press conference with a member of Parliament from the Korean National Assembly
on the following day.25 At the press conference, Greenpeace demanded policy reforms and transparent
monitoring systems. Following the political and public pressures, MOF agreed to tighten the management
of Korean distant water fishing fleets and to increase the penalties for non-compliance.26
After weeks of legislative process at the National Assembly, the Legal Committee passed amendments on 17
June 2013 that strengthened the Act. The penalties for illegal fishing now include a potential criminal conviction,
and fines up to a maximum of three times the value of the fish caught (increased from the current fine of USD
5,000). Any government subsidy to a company that is proven to engage in IUU fishing activities or mistreatment of
fishing crews will be suspended. South Korean distant-water fishing fleets will now be monitored by government
patrol ships in the WCPO. The revised Act sends a strong message to the South Korean distant-water fishing
fleet that the industry will be properly regulated, with serious consequences for breaching fishery rules.
• a Vessel Monitoring System (VMS), which monitors the location of all licensed fishing vessels in the area
• the Vessel Day Scheme (VDS), whereby fishing is limited by the purchase of a set number of fishing days
•prohibitions on the use of FADs by purse seiners for a set time period
•closure of international waters in the WCPO to all purse seine fishing
•100% observer coverage of purse seine vessels to monitor fishing practices.
PNA has recently tripled access fees to WCPO tuna fishing for the US from USD 21M in 2011
to USD 63M for 2013.20 A new round of negotiations is underway between the US and some
Pacific Island countries, and PNA has insisted that the US will lose its preferential access to the
tuna resources for their 40 tuna fishing vessels in order to bring higher returns to the Pacific Island
countries in terms of economic benefits and jobs for local people.21
For other foreign companies whose fleets fish under the VDS, a new benchmark fee has been
increased from USD 5,500 to USD 6,500 per day, an 18% jump, beginning in 2014.22
Many such recent moves by the Pacific Island countries in increasing regulation of their tuna
resources, including moves towards requiring landing of catches in the region and expanding
measures to longline vessels, mean that foreign fishing companies will have to adopt sustainable
fishing practices or risk being excluded from the world’s last productive tuna fishing ground.
Investor risks:
• Dongwon Industries may not be able to meet its production target due to increased regulatory requirements on the amount of catch and landing conditions.
• Increased costs from higher access fees paid to Pacific island countries and fishing requirements may lead to deteriorating returns on capital intensive fishing operations.
• Dongwon may lose access to key EEZs over time as domestic fishing capacity increases in the WCPO.
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5. Environmental impacts
As species seldom live in isolation,
overfishing of one species could threaten
the survival of another if selective fishing
methods are not used. This can have a
detrimental effect on the ocean ecosystem,
which in turn will have serious effects on
the health and the future supply of the
tuna stocks.
FADs in tuna fisheries cause depletion of stocks
FADs are widely used by the purse seine tuna industry and are the main method of catching tuna
for canning. FADs are man-made structures consisting of objects floating at the ocean surface
to attract fish to congregate under and around them. Although the use of FADs can increase the
efficiency of fishing operations, it has four major consequences, all of which have considerable
implications for the sustainability of tuna fisheries:
•They increase the fishing capacity of purse seiners in a way that is difficult to control and measure.
•They increase the catch of juvenile skipjack tuna.
• They result in bycatch of non-target (and vulnerable) species such as juvenile bigeye and
yellowfin tuna, sharks, turtles and other marine species.
•Many FADs end up as marine debris in the water column and on the seabed.
Together with the lack of operational catch data, the use of FADs undermines the reliability of
assessments both of stocks and the ecological impacts, which make sustainable management of
tuna resources difficult, if not impossible.27 The catch of juvenile tuna of targeted or non-targeted
species could impact the recruitment of these stocks and lead to further depletion of tuna – bycatch
of juvenile bigeye tuna by FADs is the primary cause of decline of the bigeye stock.28
© Alex Hofford / Greenpeace
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Sharks as bycatch in Pacific tuna fisheries As well as the targeted tuna species, FADs attract and capture other species than tuna, including overfished
species of billfish, vulnerable species of sharks and sea turtles. The bycatch of sharks is particularly serious
in the longline tuna fisheries, where sharks comprise up to a quarter of the total catch in some pelagic
longline tuna fisheries.29 Data presented by Korean researchers to the WCPFC Science Committee in 2009
showed that a total of 22 bycatch species were recorded during a longline tuna fishing trip, which included
blue sharks, stingrays, bigeye thresher sharks and other vulnerable species of sharks.30
Since the management and control of shark fishing in tuna fisheries is very limited, ‘shark finning’, the
practice of cutting fins off sharks, often while they are still alive, and throwing the shark bodies back into
the ocean, is common on tuna fishing boats. The fins can be sold at top prices in countries where shark
fin soup is a delicacy. Shark finning has become so lucrative to the longline vessels that, as tuna catches
decline, many vessels have switched to target sharks for the shark fin trade as part of their operations.
Globally, around three quarters of the oceanic pelagic shark and ray species are now classified as
threatened or near-threatened by the IUCN.31
With the awareness of shark bycatch in tuna fisheries rising, more shark species are falling under
CITESiv restrictions and their international trade controlled,32 and many regional fisheries management
organisations have banned the retention of certain species of sharks. This affects the economics of
tuna fishing operations, potentially making it unprofitable. Consumer awareness and added regulatory
changes could also lead to an outright ban of products which are produced using unsustainable
fishing methods. Investors should be aware of these risks (see Box 2 for detail).
Box 2. Legislations in the US on dolphin bycatch and consumer label
Marine species bycatch in tuna fisheries is not a new issue. In the 1970s, the public outcry
against hundreds of thousands of dolphins being killed every year in tuna purse seine fisheries
in the Eastern Pacific, led to a series of laws being passed in the US to protect dolphins.
Beginning with the Marine Mammal Protection Act of 1972, the Dolphin Protection Consumer
Information Act passed in 1990 created the ‘Dolphin Safe’ label, which requires that only canned
tuna caught without dolphin contact could be sold in the US market. A recent proposal by the
National Oceanic and Atmospheric Administration in the US has tightened the requirements,
extending them to all ocean regions, and aiming to comply with the World Trade Organisation
appellate panel ruling in 2011.33
Investor risks:
• Current fishing methods employed by Dongwon Industries have serious environmental impacts which lead to reputational risks.
• Current unsustainable fishing methods employed by Dongwon Industries undermine its own future revenue from tuna.
iv The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is one of the largest and oldest conservation and sustainable use agreements, with 178 member parties. It aims to ensure that international trade in specimens of wild animals and plants does not threaten their survival.
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6. Emergence of consumer concerns and market restrictions
The current dire state of the oceans and growing consumer demand for sustainable seafood has
caused a rapid transformation in the global seafood industry. Many progressive companies are fast
adapting their fishing practices and supply chain management to ensure they can meet the new
standards and consumer expectations of being a responsible supplier.
Following Greenpeace’s campaign worldwide around the sustainability of canned tuna, some of the
biggest tuna industry businesses, including leading brands and major retailers around the globe, are
making commitments to phase out the use of FADs in purse seine fisheries. They are also actively
supporting the designation of marine reserves in the Pacific Ocean (Pacific commons) by agreeing
not to sell tuna sourced from those areas.
Western markets have already changed
Retailer / Brand Sustainable tuna commitments Note
UK – the second largest market globally, all major brands have made sustainability commitments
Tesco37– largest retailer in the UK 100% pole-and-line for own-brand products by end 2012
Sainsburys34 100% pole-and-line tuna for their products
Marks and Spenser35 100% pole-and-line tuna for their products
Waitrose36 100% pole-and-line tuna for their products
Asda 100% FAD-free or pole-and-line tuna by end of 2016
Morrisons 100% FAD-free or pole-and-line tuna by end of 2016
John West 100% FAD-free or pole-and-line tuna by end of 2016Owned by Thai Union
Princes 100% FAD-free or pole-and-line tuna by end of 2016Owned by Mitsubishi
The canned tuna market in key western countries including the United Kingdom, Australia and
New Zealand have been completely transformed, with sustainably and responsibly caught tuna
the only acceptable standard for major retailers. One such example is the United Kingdom, which
is the second largest market for canned tuna. All of the major retailers and brands in the UK have
committed to sourcing sustainably caught tuna. Sainsburys,34 Marks & Spencer35 and Waitrose36
are sourcing 100% pole-and-line tuna for their products. Tesco, the world’s third largest retailer
and the largest in the UK, committed to source pole-and-line tuna for all their own-brand products
by the end of 2012.37 Other retailers such as Asda and Morrisons, and leading brands John West
(owned by Thai Union) and Princes (owned by Mitsubishi), have all committed to source their tuna
from FAD-free or pole-and-line fisheries, at the latest by the end of 2016.
There is a high and growing demand in international markets for sustainably caught tuna. Table 1
outlines the sustainable tuna commitments of major retailers or brands in selected countries.
Table 1. Sustainable tuna commitments of major retailers or brands in selected countriesThe in
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Retailer / Brand Sustainable tuna commitments Note
Australia – all major canned tuna brands will be sustainably sourced within a few years
John West Australia38 – largest brand by value and volume
100% FAD-free by 2015Sold in New Zealand also
Greenseas39 100% FAD-free by 2015Sold in New Zealand also
Sirena40 100% FAD-free or pole-and-line by 2016
Safcol41 100% pole-and-line or FAD-free
Coles42 100% FAD-free by 2015
IGA43 100% FAD-free or pole-and-line by 2015
Aldi44 100% FAD-free or pole-and-line by 2016
Woolworths45 100% FAD-free or pole-and-line by 2015Sold in New Zealand also
New Zealand – all local brands will be FAD-free by early 2014, other major brands are
Australian-owned, and listed above.
Foodstuffs 100% of canned tuna is 100% FAD-free or pole-and-line
Sealord46 Will source only FAD-free tuna by early 2014
US – the largest canned tuna market globally is seeing more sustainable tuna availability
Safeway47 - third largest grocer in the US
100% FAD-free skipjack for their own-branded product from April 2012. Committed not to source tuna from the Pacific commons
Whole Food Markets – largest natural and organic grocers in the US
100% pole-and-line or FAD-free
Walmart Selling FAD-free tuna under a new label
Smaller, boutique labels 100% pole-and-line and troll-caught albacore tuna
Canada
Gold Seal48 - leading canned tuna brand
100% FAD-free skipjack by 2015.Committed not to source from the Pacific commons.
Wild Planet49 - smaller but influential eco-brand
100% pole-and-line and troll fisheries
Safeway Canada100% FAD-free or pole-and-line since the end of 2012.Developing a line of troll-caught albacore.Measures to relieve pressure on Pacific skipjack fisheries.
President’s ChoiceDeveloping lines of troll-caught albacore.Measures to relieve pressure on Pacific skipjack fisheries
Owned by Canada’s largest supermarket chain Loblaw
Western FamilyDeveloping lines of troll-caught albacore. Measures to relieve pressure on Pacific skipjack fisheries
Owned by Overwaitea Food Group
Italy – supplies of sustainable tuna are improving
AsdoMar – leading brand50% of skipjack shifted to pole-and-line. Supports developing marine reserves, implementing better labelling.
Mareblu – third largest brandOnly sell pole and line or FAD-free by 2016. Committed not to source from Pacific commons
Part of MW Brands owned by Thai Union.
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Asian market next?
Unfortunately, tuna companies from Asia, including Dongwon Industries
and its associated brand Dongwon F&B, have been slow to respond to
this growing trend by failing to demonstrate their clear support of and
commitment to responsible and sustainable tuna fisheries. If the companies
continue to disregard the sustainability aspect of their tuna source, they risk
losing access to sustainable supplies and thus the competitive advantage
of operating their business innovatively, ambitiously and decisively.
While it is easy to hide behind the success of their current business model, it is clear that the biological
and regulatory externalities of tuna supplies are fundamentally changing. Consumers worldwide
recognise the need for sustainable seafood, and it is only a matter of time until Asian consumers
catch up with the seafood sustainability issues and demand more sustainable and ethical choices.
Any business that is slow to adapt to this consumer demand will surely lose out in the market. The
only way to secure tuna supplies for tomorrow, and ensure the industry is viable for the long-term,
is by running a tuna fishing business sustainably.
Implications for export markets
The transformation of canned tuna market in many Western countries poses significant challenges for
Korean tuna companies, since only products of the highest standard would be allowed into these markets.
Currently, Dongwon Industries and other Korean tuna companies are lagging behind: the recent high
profile example of bad management in Dongwon Industries’ operations raise doubts about the legality of the
sources of their supply, for which one of their vessels was refused to land the tuna catch in Mauritius50 (see
Section 7). Their lack of rigorous sustainability standards runs the significant risk that increasingly retailers
will not accept the entry of Korean products into Western markets, as demonstrated by the issuance of
warnings from European authorities about illegal tuna product from West Africa entering the market.51
Investor risks :
• Dongwon Industries loses access into international markets with high consumer demand for sustainable seafood due to reputational issues.
• Dongwon Industries is unable to adapt its operation to more sustainable methods when regulation tightens for these markets.
© Jiri Rezac / Greenpeace
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7. Bad management and lack of standards in overseas operations
Distant-water fishing is an industry renowned for bad practices and sometimes involves criminal
activities, especially when fishing on the high seas and in the waters of developing countries (e.g.
West Africa) where governance is weak. Despite having one of the biggest distant-water fleets
globally and being signatories to a number of international fisheries instruments,v South Korea has
not lived up to its international obligations; instead allowing its distant-water fishing companies to
continue to exploit poor countries and escape sanctions.
To highlight this unethical business behaviour, Greenpeace East Asia release a report titled “South
Korea Distant Water Fisheries – illegal, unreported and unregulated (IUU) and tarnished by human
rights abuses” in April 2013 together with the Parliamentarian Mr. Shim Jae-Kwon at the National
Assembly’s Foreign Affairs, Trade and Unification Committee.52 The report received huge media
attention and various government Ministries have promised to tackle this embarrassing issue. The
regulatory framework for the South Korean distant water industry and the penalties have since been
tightened in recent months (see Section 4).
Box 3. What is illegal, unreported and unregulated (IUU) fishing?
IUU fishing undermines efforts to conserve and manage fish stocks, leads to the loss of both
short and long-term social and economic opportunities, and in particular negatively affects
the food security of many fishery-dependent coastal communities.
According to the FAO’s International Plan of Action to prevent, deter and eliminate illegal,
unreported and unregulated fishing:53
• ‘Illegal’ fishing refers to activities conducted in contravention of relevant national or
international laws and regulations;
• ‘Unreported’ fishing refers to fishing activities that have not been reported, or have been
misreported, to the relevant national or regional authority;
• ‘Unregulated’ fishing refers to fishing activities conducted by vessels without nationality,
or by those flying the flag of a State not party to a regional management organisation, in
a manner that is not consistent with or contravenes the conservation and management
measures of that organisation, or in areas or for fish stocks for which there are no
applicable conservation or management measures, and where such fishing activities are
conducted in a manner inconsistent with State responsibilities for the conservation of living
marine resource under international law.
v Such as the United Nations Agreement on straddling and highly migratory fish stocks, and the UN Food and Agriculture
Organisation’s Compliance Agreement.
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Investor risks :• Current and possible future financial liabilities from fines due to unlawful activities
in countries where it fishes and operates.
• Mishandling of environmental, social and governance issues poses a reputational risk to Dongwon Industries.
Questionable acquisition of Senegalese cannery In 2012, Dongwon Industries acquired the largest cannery in Africa, Societe de conserverie en
Afrique SA, which later changed its name to Societe d’exploitation-Societe nationale de conserverie
du Sengeal (Se-SNCDS). It appears that the acquisition went under the decree of former president
Abdoulaye Wade, without the proper tender process required by Senegalese law.64 Local media
questioned the motive of the previous government in signing the deal.65
In April 2013, top management of Dongwon Industries had to appear in the Dakar criminal court, under legal
procedure brought about by local businessman Fouad Nouasser. Mr Nouasser invested CFA 3B (approx. USD 6M)
in the cannery before the Dongwon Industries’ acquisition and was the company’s Deputy Director. Mr Nouasser
claimed that he was removed from the cannery’s board by Dongwon Industries based on forged documents.66
By acquiring the Senegalese cannery, it appears that Dongwon Industries is aiming to expand into
the European market and take advantage of an EU tax exemption for fisheries products originating
from Senegal. However, the poor business ethics of the company, in particular in their overseas
operations, raises questions about whether they could meet the higher regulatory and consumer
standards demanded of a multi-national company.
Dongwon Industries illegal fishing case in West Africa In the Greenpeace report, Dongwon Industries was highlighted as one of the worst offenders with
a recent IUU fishing case in Africa, including forgery of official documents.
Two tuna purse seine vessels, one owned and one operated by Dongwon Industries, the F/V PREMIER and
the F/V SOLEVANT, were caught fishing illegally in Liberia in 2011and 2012 and were under investigation
by the Liberian authority.54 This and other illegal fishing cases have prompted the European Union55 and
the United Kingdom56 to issue warnings to importers that IUU products may have entered their canned
tuna market, while several countries in the Western Indian Ocean have denied a fishing licence to the F/V
PREMIER due to the then ongoing IUU case in Liberia. Rather than cooperating with the investigation, an
employee of Dongwon Industries forwarded two letters to the Government of Kenya, implying that the F/V
PREMIER was innocent of the illegal fishing charges in Liberia.57 The Bureau of National Fisheries in Liberia
later confirmed the letters were forged.58 This has created an international scandal and has resulted in unified
action by coastal States in the Indian Ocean to refuse to license the vessel or allow it services in port.59
Dongwon Industries negotiated a settlement with the Government of Liberia and have paid a fine
of USD 2M.60 Although Dongwon Industries has maintained its claim as a victim of fraud,61 the fact
that the agency they have used is also involved with five other vessels from Inter-Burgo,62 another
Korean operator that is notorious for IUU activities, suggested the company has lax standards in its
overseas operations and weak due diligence in high risk countries.
Dongwon Industries is currently under investigations on multiple fronts in South Korea, which has raised questions
regarding the competence of the general operations and governance of the company. Since the illegal fishing case
in Liberia has surfaced, the South Korean Coast Guard has initiated an independent investigation into this case. In
addition, several Members of the Parliament from the National Assembly hosted a workshop on 11 May 2013 to
look into the general ethnics of Korean fishing companies and find ways to prevent similar cases from happening in
the future. The National Tax Service raided Dongwon group’s office on 25 April 2013, along with Sajo, on suspicion
of offshore tax evasion related to ‘their illegal practices such as flag-of-convenience fishing vessels’, and ‘irregular
money transfers during the import and export production’ as reported by Money Today and Hankuk Economy TV.63
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8. Conclusion
Green
Orange
Red
1st Ottogi
Silla Co., Ltd
2nd Sajo Industries
Sajo Industries
3rd Dongwon F&B
Dongwon Industries
Box 4. Sustainability ranking on Korean canned tuna products
Source: “No sustainable tuna in Korea” Greenpeace’s canned tuna sustainability report, June 2013. (http://www.greenpeace.
org/korea/multimedia/publications/2013/oceans/360384/)
Dongwon Industries’ recent expansion beyond the South Korean market and its aggressive capital
growth are based on the assumption that there is an unlimited supply of tuna resources. In fact, tuna
catches have probably peaked and there are recent and increasing restrictions on catch quota
by regional fisheries management organisations, and by the Pacific island countries that own the
resources. Dongwon Industries’ business model poses significantly risks to the environment, the
resource it depends on and threatens the long-term financial viability of the company.
Investors should consider whether Dongwon Industries has sufficiently disclosed its business risks,
such as the financial and regulatory risks posed by the diminishing tuna catch or the increased
market risk created by the demand for sustainably caught tuna. The governance and management
risks for Dongwon Industries are in particular concerns, and have recently alerted South Korean and
international authorities, including the National Tax Services, to investigate its operations. Investors
should be aware of the impacts of increasing restrictions from the South Korean government on the
currently under-regulated distant-water fishing operations of large companies .
In June 2013, Greenpeace released a report named “No sustainable tuna in
Korea” in order to provide sustainability guidance on canned tuna products
to Korean consumers. No Korean brand currently meets Greenpeace’s
sustainability standards. The ranking result shows that Dongwon comes at
the bottom amongst the three key brands in the market.
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Development – East Asia and Pacific Region. The World Bank. Washington DC. 52pp.19 Parties to the Nauru Agreement Factsheet. Available at http://www.pnatuna.com/system/files/PNA1.pdf 20 Walter, D. The Great Pacific Tuna Cartel. The Wall Street Journal. 21 March 2013. Available at: http://online.wsj.com/article/SB100014241
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com/2013/02/05/us-access-to-pacific-islands-tuna-under-negotiation/#.UXD4yrVTAb022 Outcomes from PNA annual meeting 25 Feb-1 March 2013. http://www.pnatuna.com/outcomes-pna-annual-meetings-25-feb-1-
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release/oceans/2013/353503/25 美, 한국 불법어업국가 지정…정부는’수수방관’ 10 April 2013. http://biz.chosun.com/site/data/html_dir/2013/04/10/2013041002199.
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WCPFC-SC5-2009/FT-WP-02. Available at: http://www.wcpfc.int/doc/ft-wp-02/doo-hae-you-jung-kwon-doo-nam-kim-dae-yeon-
moon-and-seon-jae-hwangcatch-small-sized-tu 31 Camhi, MD., Valenti, SV., Fordham, SV., Fowler, SL., Gibson, C. (2009). The Conservation Status of Pelagic Sharks and Rays. Report
of the IUCN Shark Specialist Group Pelagic Shark Red List Workshop. Tubney House, University of Oxford, UK, 19–23 February 2007. p
56–7. Available at: http://cmsdata.iucn.org/downloads/ssg_pelagic_report_final.pdf 32 ‘CITES conference takes decisive action to halt decline of tropical timber sharks, manta rays and a wide range of other plants and
animals’. CITES press release. 14 March 2013. http://www.cites.org/eng/news/pr/2013/20130314_cop16.php33 US tuna plan pleases conservationists, upsets Mexican industry. Reuters article. 10 April 2013. Available at: http://www.reuters.com/
article/2013/04/10/us-usa-mexico-dolphins-idUSBRE93918P20130410?feedType=RSS&feedName=environmentNews ; US-NOAA.
Enhanced Document Requirements to support use of dolphin safe label on tuna products. 5 April 2013. Available at: https://federalregister.
gov/a/2013-07990
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34 ‘All Sainsbury’s tuna to move to 100% pole and line caught’. Sainsbury press release. 7 January 2011. http://www.j-sainsbury.co.uk/
media/latest-stories/2011/20110107-all-sainsburys-tuna-to-move-to-100perc-pole-and-line-caught/ 35 ‘Marks & Spencer updates on progress of its “Eco-plan”, Plan A’. Marks & Spencer press release. 5 November 2009. http://corporate.
marksandspencer.com/media/press_releases/planaupdate36 ‘All Waitrose canned tuna to carry MSC logo’. Waitrose press release. 20 February 2013. http://www.waitrose.presscentre.com/Press-
Releases/All-Waitrose-canned-tuna-to-carry-MSC-logo-b36.aspx37 ‘Tesco makes sustainable tuna pledge – all Tesco canned tuna will be pole and line caught by the end of 2012’. Tesco press release.
11 January 2011. http://www.tescoplc.com/index.asp?pageid=17&newsid=39738 ‘John West confirms its commitment to sustainable tuna’. John West website. Accessed on 26 April 2013. http://johnwest.com.au/john-
west-confirms-its-commitment-to-sustainable-tuna39 Sustainability – Greenseas website. Accessed on 27 April 2013. http://www.greenseas.com.au/Sustainability 40 Sustainability – Sirena website. Accessed on 27 April 2013. http://www.sirena.com.au/sustainability41 Environment – Safcol website. Accessed on 27 April 2013. http://www.safcol.com.au/content/environment/gjgk1s42 ‘Coles launches first responsibly fished supermarket brand tuna’ Coles press release. 30 August 2011. http://www.coles.com.au/
Portals/0/content/pdf/news/Tuna%20pole%20and%20line%20media%20release%20doc.pdf43 IGA sustainability consumer information page – IGA website. Accessed on 27 April 2013. http://www.iga.com.au/igafresh/index.
cfm?page_id=270844 ‘Aldi Australia puts sustainable seafood on the table’. Aldi press release. 18 March 2013. http://aldi.com.au/au/html/downloads/ALDI_
Media_Release_-_Sustainable_Fisheries_Partnership_Announcement_-_March_2013_-_FINAL.pdf45 Sustainable seafood – Woolworths website. Accessed 27 April 2013. http://woolworths.com.au/wps/wcm/connect/Website/Woolworths/
About+Us/Our+Planet/Sustainable+Seafood/46 ‘Sealord tuna goes FAD-free’. Sealord media release 29 May 2013. http://www.sealord.com/docs/default-document-library/sealord-
announces-fad-free-tuna-29-may-2013.pdf47 ‘Safeway announces new sustainable sourcing practice for tuna’ Safeway press release. 10 February 2012. http://www.safeway.com/
IFL/Grocery/Lifestyle?contentURL=http%3A%2F%2Fphx%2Ecorporate-ir%2Enet%2Fphoenix%2Ezhtml%3Fc%3D64607%26p%3Dirol-newsArti
cle%26ID%3D1659609%26highlight%3D#iframetop 48 ‘Sustainable Seafood procurement policy – tuna’. Gold Seal website. Accessed 28 April 2013. http://www.goldseal.ca/aboutus/tuna_
procurement_policy.asp; 49 ‘Raincoat Trading Ltd Product procurement policy statement’. Updated February 2011. http://www.raincoasttrading.com/_downloads/pdf/
policy/ProcurementPolicy-RT.pdf 50 ‘Dongwon vessel refused entry to Mauritius port’. Undercurrent news article. 19 April 2013. http://www.undercurrentnews.
com/2013/04/19/dongwon-vessel-refused-entry-to-mauritius-port/#.UYywT7VTAb051 “West African canned tuna now a major risk for imports”. Atuna article, 4 March 2013. http://pna.atuna.com/ViewArticle.asp?ID=1256152 한국 원양어선들의 고착화된 불법어업(IUU)으로 대한민국 위신 추락11 April 2013. http://www.greenpeace.org/korea/news/press-
release/oceans/2013/353503/53 FAO (2001) International Plan of Action to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing. Rome, 24pp. http://
www.fao.org/docrep/003/y1224e/y1224e00.htm54 Letter by the Bureau of National Fisheries, Ministry of Agriculture, Republic of Liberia. 20 February 2013. http://www.liberiafisheries.net/
sites/default/files/pdf/Warning_Lib._Gov_Doc.pdf55 “West African canned tuna now a major risk for imports”. Atuna article, 4 March 2013. http://pna.atuna.com/ViewArticle.asp?ID=1256156 Letter from the Department for Environment Food & Rural Affairs (DEFRA). ‘Important information regarding the import of West African fish
products into EU and UK markets’. 27 February 2013. http://www.seafish.org/media/771007/letter%20to%20tuna%20importers%20130227.
pdf57 “F/V Premier - another IUU vessel involved in illegal fishing and fraud in Liberia.” Stop Illegal Fishing article, 21 February 2013. http://
www.stopillegalfishing.com/sifnews_article.php?ID=10258 Letter by the Bureau of National Fisheries, Ministry of Agriculture, Republic of Liberia. 20 February 2013. http://www.liberiafisheries.net/
sites/default/files/pdf/Warning_Lib._Gov_Doc.pdf50 ‘Dongwon vessel refused entry to Mauritius port’. Undercurrent news article. 19 April 2013. http://www.undercurrentnews.
com/2013/04/19/dongwon-vessel-refused-entry-to-mauritius-port/#.UYywT7VTAb060 ‘Liberia receives 2,000,000 USD for IUU activities’. Liberian Ministry of Agriculture website. http://liberiafisheries.net/node/1561 ‘Dongwon claims to be victim of fraud’. Undercurrent news. 15 March 2013. http://www.undercurrentnews.com/2013/03/15/dongwon-
claims-to-be-victim-of-fraud/#.UYypQ7VTAb1 62 Greenpeace report ‘한국 원양어업 불법어업(IUU) 실태 보고서’ Available at: http://www.greenpeace.org/korea/multimedia/
publications/2013/oceans/353504/; ‘Forged license, illegal transporting, waste dumping: The deep-sea fishery nation Korea disgraced’ The
Kyunghyang Shinmun. 11 April 2013. http://english.khan.co.kr/khan_art_view.html?artid=201304112038357&code=71010063 ‘동원산업•사조산업 세무조사… 역외탈세혐의 무게’ Money Today. 25 April 2013. http://news.mt.co.kr/mtview.php?no=20130425192
90543013&type=1&MS2. ‘국세청, `동원•사조` 특별 세무조사’ Hankuk Economy TV. 26 April 2013. http://www.wowtv.co.kr/newscenter/
news/view.asp?bcode=T30001000&artid=A20130426027464 La SNCDS vendue en catimini à des Coréens : le flou total sur une transaction. Dakaractu. 6 November 2012. http://www.dakaractu.
com/La-SNCDS-vendue-en-catimini-a-des-Coreens-le-flou-total-sur-une-transaction_a34655.html;65 “Liaisons dangereuses en eaux troubles". Liberation, 12 April 2013. 66 “Dongwon mêlé dans une autre scandale pour (encore) faux et usage de faux”. Liberation. 13-14 April 2013.
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