For discussion
on 23 April 1998


New Subhead "Kadoorie Agricultural Aid Loan Fund
- loans to mariculturists"
Subhead 787 Grant to the Emergency Relief Fund (block vote)

Members are invited to approve -

  1. creation of a new subhead under the Loan Fund with a commitment of $200 million to enable the Kadoorie Agricultural Aid Loan Fund to make loans to affected mariculturists; and

  2. supplementary provision of $17 million in 1998-99 under Head 170 Social Welfare Department Subhead 787 Grant to the Emergency Relief Fund (block vote) to meet increased expenditure of the Emergency Relief Fund.


A bloom of marine algae in March/April 1998 killed a large proportion of the fish in fish culture zones throughout Hong Kong. The affected mariculturists are eligible for aid and relief under the Emergency Relief Fund (ERF) and loan assistance to re-establish their businesses from the Kadoorie Agricultural Aid Loan Fund (KAALF) but both ERF and KAALF have insufficient funds to meet these requirements.


2. We propose -

  1. to create a new subhead under the Loan Fund with a commitment of $200 million to enable the Kadoorie Agricultural Aid Loan Fund Committee to make low-interest loans to affected mariculturists; and

  2. supplementary provision of $17 million under Head 170 Social Welfare Department Subhead 787 Grant to the Emergency Relief Fund (block vote) to meet increased expenditure arising from emergency relief grants to affected mariculturists.


Occurrence of red tide

3. A bloom of marine algae, referred to as a "red tide", was detected on 18 March 1998 in the north-eastern waters of Hong Kong. Another bloom attacked Lamma and Lantau Islands on 10 to 11 April. These blooms killed most of the fish in almost all of the 26 fish culture zones in Hong Kong, affecting some 1 500 licensed mariculture operations.

4. Such blooms are natural phenomena. They are caused by the rapid multiplication and growth of certain species of algae in sea water. They deplete the level of oxygen in the water and may be toxic to fish. It is very difficult to predict their occurrence. They can develop in a few hours and affect fish culture zones before mariculturists have time to take evasive action, such as moving their rafts to other waters. They generally subside within a few days.

5. Previous red tides have generally been of limited scale and involved algae that depleted the oxygen in the water without being toxic to fish. In such circumstances, it is possible to monitor the situation and warn mariculturists. The recent occurrence, however, is the most extensive to occur in the last 15 years and the first time that the species of algae Gyrodinium aureolum has been encountered as the dominant species in a red tide. This species affects fish directly, damaging their gills and causing them to die.

Relief and assistance to affected mariculturists

6. There are existing arrangements for assisting mariculturists whose operations are affected by red tides.

Grants under the Emergency Relief Fund

7. The ERF provides grants to people who suffer loss as a result of natural disasters. Section D of the ERF grants specifically provides aid and relief to primary producers who suffer loss of crops, livestock or fish. According to the rates applicable to loss of mariculture fish as previously approved by Finance Committee, affected mariculture operators are each eligible for grants of up to a maximum of $11,250 1. On the basis of 1 500 affected mariculturists each being eligible for the maximum grant, the Director of Agriculture and Fisheries (DAF) estimates the total requirement to be $17 million.

8. The ERF, originally set up with community donations, is now entirely financed from general revenue through an annual block grant made to it under Head 170 Social Welfare Department Subhead 787 Grant to the Emergency Relief Fund (block vote). Including the approved annual grant of $10 million in the 1998-99 Estimates, ERF now has a balance of $15 million. This is inadequate to meet payments to affected mariculturists. To ensure that ERF will have sufficient funds to meet this requirement and other calls on the Fund in the course of the year, we propose a further grant of $17 million to ERF in 1998-99 through supplementary provision.

Loan assistance under the Kadoorie Agricultural Aid Loan Fund

9. Under the existing arrangements, affected mariculturists may apply for loans for the purpose of re-establishing their businesses from the KAALF. Such loans may be used for purchasing fish fry, fish feed and farm equipment and for the building and maintenance of fish rafts. The size of the loan will depend on the need of mariculture operators to restock their farms and the duration in culturing the fish to marketable size.

10. To ensure that the KAALF will have sufficient funds to offer loans to affected mariculturists, we propose to make available loan capital of $200 million to the KAALF by creating a commitment for this purpose under the Loan Fund. The KAALF Committee, a statutory committee established under the Kadoorie Agricultural Aid Loan Fund Ordinance, will administer these loans and determine the loan amount for individual applicants in line with its normal arrangements and procedures. However, in view of the exceptional severity of the recent red tide and the consequent hardship suffered by mariculturists, we will recommend to the KAALF Committee that loans should be granted to the affected mariculturists with interest calculated from the date of draw down at an annual rate of 2%, rather than the normal 6%, and with an option of repayment beginning 18 months after draw down. The proposed longer period before repayment takes into account the fact that almost the entire fish stock in the affected farms have been depleted on this occasion and fish generally take about 18 months to reach marketable size. We will also recommend a maximum loan of $500,000, of which up to $100,000 may be granted on an unsecured basis. Apart from these modifications, the normal criteria for loans from the KAALF will apply. Subject to our recommendations being accepted by the KAALF Committee, the main parameters for the grant of loans to affected mariculturists from the KAALF will be as set out at the Enclosure.


11. Based on the assumption that the $200 million would be fully drawn down on day one, that half of the sum would be repaid at the end of the 18th month and the remainder repaid with interest at the end of the 24th month, and that the current "no-gain no-loss" interest rate of 6.262% (calculated on the basis of the overall return on the Exchange Fund on a time-weighted basis) would remain the same throughout the period, the amount of interest forgone is about $14.92 million. Subject to Members' approval, we shall provide the funds required in 1998-99 under delegated authority. Subsequent loan repayments will be credited to the Loan Fund. Also, we will offset the $17 million supplementary provision for a further grant to the ERF in 1998-99 by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 789 Additional commitments.


12. The KAALF provides loans to farmers for the purpose of encouraging or improving agriculture and agriculture includes all forms of aquaculture. The KAALF is administered by a committee chaired by DAF who is also Trustee of the Fund.

13. The ERF provides financial assistance to persons who are in need of relief as a result of fire, flooding, tempest, typhoon or other natural disasters regardless of their financial means. The Director of Social Welfare Incorporated, as Trustee, is responsible for the administration of the ERF. He acts on the advice of the ERF Committee. The ERF grants are grouped into five sections. Section A covers death and personal injury grants; Section B covers domestic re-accommodation, re-equipment, site formation and repair grants; Section C covers grants for the repair or replacement of vessels; Section D covers primary producer grants and Section E, special grants.

14. We have taken into consideration views expressed by mariculturists in finalising the proposals. In addition to the prompt disbursement of emergency relief grants and low-interest loans to help them to re-establish their businesses, affected mariculturists have requested that the mariculture licence fees should be waived for up to three years. As a matter of principle, we cannot accede to this request. The annual licence fee is for recovering the cost of licensing. It is calculated on the basis of raft area and represents a very small proportion of a mariculturist's operating expenses.


15. With the agreement of the Finance Committee Chairman, we have asked for a special meeting of the Finance Committee to be held on 23 April 1998 to consider this item on grounds of urgency. This is to ensure that we can provide the loans to those affected immediately. We apologise for the inconvenience caused to Members by the short notice and the late issue of the paper.

Economic Services Bureau
April 1998


1.The present rates for grants for loss of mariculture fish are $526 per square metre (m2) for cost of basic material inputs up to a maximum of $10,520 for 20m2?plus $3.64 per m2?for cost of extra labour up to a maximum of $730. Thus, the total maximum grant is $11,250.

Enclosure to FCR(98-99)13

Parameters for the Grant of Loans from the
Kadoorie Agricultural Aid Loan Fund
to Mariculturists affected by the Red Tide of March - April 1998

1. Purpose of the loan

For development and working capital needs, including the purchase of fish fry, fish feed, farm equipment, and the building and maintenance of fish rafts.

2. Qualification of applicants

(a) Holder of a valid mariculture licence issued under the Marine Fish Culture Ordinance or mariculturists who are actively engaged in mariculture operation in one of the licensed farms in the fish culture zones prior to the red tide in March - April 1998 and who are in need of a loan for the above purpose; and

(b) the stock in the mariculture farm must be owned by the applicant and not be beneficially owned by another person or a company.

3. Number and maximum amount of loans

No more than one loan per applicant will be granted.

Loan amount not exceeding $500,000 of which up to a maximum of $100,000 may be granted on an unsecured basis.

4. Security

The trustee shall ensure that adequate security is provided for the secured portion of the loan. For the unsecured loan, the applicant is required to provide a guarantor.

5. Interest

2% per annum for all loans.

6. Loan period

Two years.

7. Repayment

By lump-sum or instalments commencing 18 months after draw down of loan; or by eight equal quarterly instalments upon draw down, the last instalment to include interest accrued.

[Unless otherwise approved by the trustee, the borrower should repay the amount of outstanding principal and interest within two years from the date of draw down.]

8. Submission of applications

Applications should be submitted within three months from the date of Finance Committee approval of the loan commitment.