Seriola farming - failure to launch?

Seriola dumerili

I posted an article on LinkedIn a few weeks ago proclaiming the virtues of various seriola species as candidates for increased farm production. I was speaking generally about yellowtail, amberjack, kanpachi etc – there are important differences between the species, but generally, they all command high market prices, have fantastic culinary properties and, in the case of yellowtail, have been produced at significant quantities for longer than salmon. So why haven’t volumes tracked with development of the salmon industry?

There are lots of scholarly articles for those wanting a deeper understanding of the challenges of farming seriola species. This blog, however, is intended to provide a 2–3-minute primer on the fish, the industry and barriers to growth. Thanks to @Michael Rust and @Andrew Forsythe for their input. Opinions are mine and mine alone - don’t blame them.

First a few basics:

Price – consistently high market prices – like salmon – perhaps a bit higher in some cases but a smaller, narrower market.

Processing – the yield to skin-on fillets from a head-on gutted fish is about 63% - just a shade lower than salmon and trout but miles ahead of most marine and freshwater species. Pin bone, bloodline and skin removal shave off a few more percentage points, but overall, still very solid.

Culinary properties – with a lower fat content than a salmonid, it is a bit harder to cook at home but much fattier than cod, haddock or halibut. With a great texture, it has tremendous sushi and sashimi appeal but is also excellent on a grill, in ceviche etc.

Farming of seriola species

I was surprised in my reading to find that culture of Hamachi – seriola quinqueradiata – has been around for ~100 years. For many years farming was focused on the wild capture of juveniles and feeding until harvest with wild-caught forage fish. Hatchery production and extruded pellet diets have been a relatively recent development. Current marine production is largely focused on Japan, China and Korea with total production estimated to be ~150,000 mt.

Outside of Asia, The Kingfish Company, NIWA, CleanSeas and Blue Ocean Mariculture have been the primary proponents of the species. CleanSeas and Blue Ocean farm in net pens while, the Kingfish Company and NIWA have focused on producing in land-based systems. The Kingfish Company is showing good progress but remains in a cash-burning position. NIWA launched their first commercial-scale facility this year and is presumably still working towards profitability. CleanSeas was listed on the Australian stock exchange in 2005 and, as of their latest exchange filings, appears to be in negative EBIT territory as well. Blue Ocean Mariculture grew out of a research effort and is now owned by Cuna del Mar. Combined, these four companies represent roughly 5,000mt of production. Producing seriola profitably is clearly not an easy task.

Barriers to growth

Saltwater hatcheries

Saltwater is harder on hatchery equipment than freshwater and the development of dependable saltwater recirculation systems has lagged development in freshwater. Good systems have been developed but they are not common

Broodstock

Rearing, spawning, fertilizing and egg collection methods took a long time to develop – much harder than freshwater spawning species

Early rearing

Seriola eggs are small and they must transition to a diet of live feeds within hours of hatching. Supplying live feed with the correct balance of amino acids took considerable development effort

Hatchery mortality

Hatchery survival in marine species is much lower than salmonids. The juveniles are smaller and if the nutritional balance supplied through live feeds is not correct, massive mortality can result. On the upside, the fecundity of brood females is outstanding with an individual female capable of producing millions of eggs per spawn while Atlantic salmon will produce 5,000 – 10,000 eggs per the single spawning event in their life cycle. Most seriola species can spawn repeatedly. This, in the longer term, should prove to be an enormous plus for seriola farming as individual animals with extraordinary breeding characteristics can be maintained and bred repeatedly to improve farming stocks.

Feed formulation

Relative to Atlantic salmon diets, seriola diets are not as advanced. They rely more heavily on expensive marine ingredients and, at least in the case of CleanSeas, they report a feed conversion ratio (the amount of feed required to produce 1 kilo of harvested fish) of 2.5:1. (Salmon generally have a feed conversion of 1.3:1 or better.) With higher feed costs and more feed required to produce a kilo of fish, their production costs are structurally much higher than salmon.

Fish health

Compared to terrestrial farmers, fish farmers have far fewer resources for managing animal health and, arguably, far more restrictive regulation about how and when they can be used. Seriola species can be prone to parasitic, bacterial and viral pathogens like any farmed species but for farmers, the tools available to manage these challenges are few and, based on my engagement with researchers, there’s not much in the pipeline for new tools either.

Market

I’ve spent most of my career in operations roles, and it is important to take my comments about sales with a grain of salt, but, despite the tremendous culinary virtues of the fish, I think it’s been a tough market to crack for seriola farmers outside of Asia. (Maybe even within Asia, but my knowledge of Asian seafood markets is even more limited than my general sales knowledge). It may be possible to maintain premium pricing when volumes are limited but I wonder about the opportunity for significant scaling. CleanSeas, for example, has consistently maintained a frozen inventory on a relatively small production volume. In most fin fish aquaculture markets, freezing is a last resort when you can’t otherwise find a fresh sale. There are a few exceptions to this but, the cash demands of a fish farming business generally create urgency around finding a fresh sale.

Will growth come?

It should. Amberjack, yellowtail, kanpachi etc. are all tremendous fish with good fundamental farming, processing and culinary characteristics. Globally, the supply of healthy marine proteins is limited, and demand grows year on year. The barriers to entry for new suppliers are enormous and existing producers should be well placed to take advantage of their leadership positions.

The key, of course, is developing a production system that is stable, dependable and cost effective.

The Kingfish Company have placed their bets on land-based production. There is good information on the investor section of their website. With an eFCR of 1.26 (implying very low mortality) their stock seems well-suited to culture in an RAS system, but production cost is still quite high at 15€/kg implying a need to achieve consistently high prices to reach profitability. Perhaps their business model rests on supplying a small volume with tightly controlled quality specifications to a market where price is not a major consideration?

The case for expanded production in net pen systems is less clear. In terms of oceanographic conditions, there is no shortage of suitable production sites for development, but producers will need to have a model capable of delivering reasonable feed conversion and survival rates and a production cost that allows them to survive the potentially painful process of developing and growing a market for their fish.

Thanks for reading. If you have any questions or comments, please reach out via my LinkedIn profile or by email at info@AlanWCook.com.