Salmon under Management

Fish is not only healthy, it can also enhance investors’ returns. Salmon farming offers investment potential. The risks associated with raising salmon, especially from an environmental perspective, can be minimized by growing on land. Onshore rearing of the world’s most popular edible fish requires investment capital of an institutional size.

“The water rushes, the water swelled, a fisherman sat on it, looked after the fishing rod, cool to the heart,” wrote poet Johann Wolfgang von Goethe. Axel-Rainer Hoffmann, member of the executive committee of Volkswohl Bund, maintains a more pragmatic relationship with regard to fisheries: “Our investment in land-based salmon farming helps us to stabilize the return of our portfolio and further diversify our investment.” Having salmon in a portfolio, not just on your plate, can have a very satisfying effect, as shown by the performance of stocks of companies farming salmon in large sea-cages “nearshore” in Norwegian, Scottish or Chilean waters. In the loss-making 2018 financial year, Marine Harvest’s shares increased by 40 percent, “against the market current” so to speak. Marine Harvest is the largest salmon farmer with sales of almost four billion euros. Salmar, another salmon stock, even managed to almost double investors’ money – and all this in 2018! Salmon is not only tasty for consumers, but also investors.


More from the sea

These salmon companies are driven by the rising worldwide appetite for fish. Marine Harvest quotes data from the UN and the OECD: according to them, the world population will grow to nine billion people by 2050. It would require an additional 47.5 million tonnes of seafood, just to meet current levels of consumption. However, the consumption of fish is increasing. In 1980 consumption was 15 kilograms per capita per year but is expected to be 22 kilograms by 2026. However, this increasing demand is against a background of more and more highly fished and overfished seas and therefore leads increasingly to the need for farmed salmon. Another argument: farmed salmon needs much less land and feed than beef, pork and chicken. Food experts refer to salmon as “very efficient feed converters”. To produce one kilo of beef requires 6.8 kilograms of feed, but only 1.1 kilograms is required for a kilo of fish. These are astonishing ratios – also in light of climate change.

Can sea-farmed salmon farming be classified as a particularly sustainable investment? “Usually not,” says Martin Fothergill, co-founder and partner of Singapore-based 8F Investment Partners. “When farming salmon in the sea, there are big problems with disease and sea-lice. These parasites are harmful to the salmon, but also to the environment, as the salmon farmers administer chemicals such as antibiotics to the fish. As a result, the costs of production are growing faster than the output of fish.” Fothergill also highlights a mortality rate of 25 percent in the sea-cages. Environmental activists have long disliked the salmon cages and accuse the salmon farmers putting profits before welfare and the environment. Limits concerning parasite infestation, fish mortality and cages escapes are being broken. It is a well-known problem that sea-cage farmed salmon are full of antibiotics and can escape and then raid the territory of wild salmon species. Escapes are especially a problem for the ecosystem in Chile, where there is no natural existence of salmon.

In Chile, the weather phenomenon El Niño, which occurs every few years in the South Pacific, is an additional problem for salmon farming, causing higher fish deaths due to higher water temperatures. A common problem directly affecting consumers is the increasing water pollution from micro-plastics. These microplastics are also found in salmon from the sea. The high dividend yields of listed salmon farming companies can also be seen as one indicator for the risks of salmon farming. For example, Marine Harvest has a dividend yield of about six percent, despite its share price increase.

Although fish is considered healthy, it can have risks and side effects – also for investors. Salmon farmer Salmar is looking at offshore fish farming as an alternative to nearshore sea-cage farming. “Offshore fish farming aims to reduce the ecological footprint and improve the well-being of the fish, and to respond to the challenge of usable land,” says the salmon farmer, who wants to recognize a new era in the sustainable production of seafood with this project. However, offshore salmon farming on the high seas is much more complex and the transportation distance to consumers in southern Germany, China or the US is no shorter. Another option for investors may be to target a different point in the value chain. For example, Haniel has for a year now been diversifying its portfolio industry interests with Optimar, a company for automated fish processing systems. It develops, produces and installs solutions for use on ships, on land and for aquaculture. “Optimar offers its fishery and aquaculture customers sophisticated solutions, covering almost the entire value chain. Both the company and the market offer great potential for further growth. Thanks to its broad international presence and innovative strength, we see good opportunities to rapidly improve its strong market position”, said Haniel CEO Stephan Gemkow at the end of 2017.


Avoiding salmon lice and microplastics: Salmon farming on land

8F and Volkswohl Bund have opted for land-based Salmon Farming. 8F, the Fund Manager, has developed the project and is behind the operator Pure Salmon, which takes care of the day-to-day operations such as sourcing fish eggs, feed and product sales. Growing salmon on-land in warehouses, with 3 to 5-meter-deep tanks employing Recirculating Aquaculture System technology, allows fish in general (and salmon in particular) to be grown take advantage of high consumer demand but in a clinically pure environment without the problems described above.

“In our land-based facilities, we can optimize oxygen, temperature, salinity and PH, creating ideal conditions for the welfare and growth of our salmon,” explains Fothergill. A differentiating feature is that via the feed and the level of water current, the colour, fat content and consistency of the salmon can be adapted to the different tastes of consumers in Asia, Europe and America. For Fothergill, “indoor salmon” above all has both environmental and financial advantages and, furthermore, benefits from the fact that production is not limited by government cage-farming licenses. The fish are isolated from parasite infestation such as the lepeophtheirus salmonis (sea-lice) and microplastics, in an indoor bio-secure environment. Also, the distance to the consumer is much shorter. From the harvest in Canadian or Chilean waters to the consumer in Asia, the salmon takes a long time to travel – even by plane. “Fresh salmon is flown to the consumer. This can take a few days”, says Martin Fothergill. “Flying fish around the world is not only expensive from a financial point of view, but also creates a high carbon footprint.” However, if the salmon has been in transit for a few days, the shelf-life of the fish in the supermarket is also reduced. All in all, fresh salmon only lasts a little over a week. Therefore, a large part of salmon production has to be disposed of regularly. The “salmon margin” is therefore relatively volatile for retailers.

The approach of 8F’s first private equity fund is to produce 40,000 tonnes of salmon per year in land-based salmon farms situated close to the end consumer. In Poland, there is already a proof-of-concept farm with capacity of 580 tons, and in Japan another plant is due to be finished by 2021, which will then produce 10,000 tons of salmon per year in a controlled environment. 8F’s overall goal is to produce 260,000 tons per year through a series of private equity funds investing in farming facilities in Europe, the United States, China, Asia and the Middle East. According to Fothergill the cost of production of these facilities will be 40% lower than a traditional salmon farmer in Norway. “We eliminate the high costs of air freight, chemicals and antibiotics. After all, our fish are not exposed to possible pathogens in the ocean. Thus, our operating costs are much lower, and our production is much more predictable. Also, fluctuations in the salmon price can be relatively harmless to us.” According to Fothergill, most analysts however forecast a continuously rising salmon price. The mortality rate in these land-based facilities should be only five percent.

To the salmon farmers the risk is from other salmon farmers who could create an oversupply. However, this risk does not come from the traditional (sea-based) salmon farmers because they now have difficulties getting new licenses. It is expected that there will be more “Me too” land-based farming. Fothergill: “In the long term, land-based farming will become mainstream. At the moment we still have a first mover advantage and want to use this opportunity to roll-out our farming projects globally.” The fact that 8F opted for a global approach to salmon farming was not due to the personal preferences of the 8F team, who share a background at Deutsche Bank. “A high-quality fish also offers high margins. Salmon is also one of the few species that can be sold globally,” says Martin Fothergill. If, nevertheless, the demand for salmon ever reduces, then other fish could be bred in the same existing land-based facilities. Hence, there is a second-use capability for these facilities.