Price premiums expected, but not needed, for land-based salmon pioneers

Land-based salmon operations may, and probably should, earn a price premium when compared with “traditional” net-pen farms, but said premium won’t be a necessity for profits.

That was the view of two backers of such large-scale projects on Undercurrent News’ recent webinar, organized with Spheric Research: “Land-based salmon farming: Explosive growth through COVID-19 and beyond”.

You can watch the webinar in full at the bottom of this page, or at this link.

“A really critical point to make here is that this new generation of land-based salmon farms are large scale, so they can benefit from an economy of scale and we can get the production costs down,” said Martin Fothergill, co-founder of 8F Investment Partners, the firm behind Pure Salmon.

Pure Salmon itself plans to construct facilities producing a maximum of 20,000 metric tons, citing that as the “sweet spot between economies of scale” and risk.

“So it’s not that Pure Salmon needs to sell at a premium price over the market price; we fully expect that we should be able to sell at a premium price, but that’s a slightly different topic when we don’t need it.”

Land-based farms will look to chip away at production costs to “get them that bit lower than net-pens” through a variety of methods, he said, but more important is the location of these new projects.

“This really critical topic about moving your production to where your consumer is, because of course, that takes a significant amount of cost out of the equation. If you’re not flying fresh salmon halfway around the world, you’re just trucking it for four hours — that totally changes the dynamic, probably more meaningfully than clipping a little bit of improved FCR [feed conversion ratio] or something like that.”

Roy Hoias — partner, CEO, and owner of Lighthouse Finance, which is behind a potential 100,000t Swedish project named Quality Salmon — said that when he started looking at investments, it was “insane costs to get the money back from the RAS [recirculating aquaculture system] systems”.

“Obviously the technology and the knowledge has been driving the full cost of the prices down, we have seen cases where the combination of where you put up your facility is obviously going to have an impact on the total cost. If you’re going into a country where the electric prices are, it’s going to drive costs up; if it’s going to be a logistic issue to transport, or get feeds to the site, and all of that.”

Pareto Securities estimates net-pen salmon production costs. From NASF 2020.

“We have seen them being at 10%, 15%, 20% below the average cost of conventional farming in Norway. The latest scalability is obviously going to have a huge impact, if you have a 10,000t [farm] and you achieve 7,500t, you can still make money, but if you have a 5,000t [farm] and you do only 4,000t, you never make money.”

In short, technology means the cost of RAS production is moving in the right direction, he said. However, again, he stressed the importance of location for a land-based site, with labor costs, logistics costs, and local know-how all key to success.

On that front, Fothergill was keen to point out that Pure Salmon’s 10,000t or 20,000t targets at each planned facility were not notional figures which may or may not be reached; they are tonnages reverse-engineered from its proof-of-concept facility Poland.

Thus, Pure Salmon shouldn’t face the issue of only producing 7,500t at its 10,000t facility, the company hopes.