Where will growth come from in the salmon industry?

Image courtesy of Pan Ocean Aquaculture

Hi folks, welcome to the next installment of my Understanding Fish Farming blog. This post, like my last one on the Norwegian ground rent tax, is a response to recent discussions with clients and prospective clients. The views here are from a confessed fish farming zealot—so if you’re seeking a different perspective, you might want to look elsewhere.

The salmon farming industry is in an enviable position; consumer demand for salmon has increased yearly at rates significantly higher than production growth, despite massive price increases. The barriers to entry are enormous on several levels. From a protein production perspective, salmon are extraordinarily efficient compared to other animals. While not all farmers are created equal, the industry scores high on major sustainability indexes. These factors have inspired much interest from investors and investment funds looking to understand growth trends and find investment opportunities in the salmon farming industry.

Chart courtesy of Dag Sletmo @DNB Norway

A major question is where additional salmon can be grown when the industry is already constrained in many regions. In this post, I will discuss the key options for growth using a simple SWOT analysis for the salmon farming industry.

Traditional Net Pens

Strengths:
Currently, 99% of global salmon production occurs in traditional net pens. Despite variations in site quality, this salmon farming technology has proven reliable and cost-effective.

Weaknesses:
Some salmon farms are in locations that were ideal 30 years ago but now face deteriorating environmental conditions. Moving these salmon farms is politically fraught, making it more feasible to continue operating as is.

Opportunities:
The salmon farming industry is still in its infancy compared to other protein production forms. Solutions to pressing production challenges, like sea lice and pathogens, are being developed. Precision salmon farming, genetics, vaccines, and farming technology have only scratched the surface.

Threats:
Many salmon farms operate in areas with user conflicts and are at the mercy of regulators. They are also targets of opponents who often disregard scientific evidence.

Floating Closed Containment Pens

Strengths:
Though largely theoretical, this salmon farming concept has merit. A floating system requires little vertical lift for pumped water and offers potentially low energy consumption compared to land-based systems. Full control of water quality is a compelling argument for continuing development efforts.

Weaknesses:
Engineering a closed system to withstand ocean forces is difficult and expensive. Progress has been made, but the systems are still too costly and risky for most applications.

Opportunities:
If improved, these systems could be a viable option for juvenile salmon production as an alternative to land-based post-smolt facilities.

Threats:
These systems face similar user conflicts as traditional net pens and may introduce new issues, such as 24-hour operation of pumps and lights. Some regions' power grids may not support these systems.

Floating Semi-Closed Containment Pens

Strengths:
Still in development, these systems could address salmon farming problems concentrated in the ocean's surface layer, such as sea lice and plankton, by drawing water from deeper layers.

Weaknesses:
They are expensive and may not fully resolve issues like waste discharge and benthic impacts.

Opportunities:
In regions with the necessary infrastructure, they could make existing salmon farm sites viable again and offer a good option for juvenile salmon production.

Threats:
They don't resolve key user conflicts, may require high stocking densities, and carry risks related to mechanical failures.

Offshore Salmon Farming

Strengths:
This technology offers the potential for massive production growth by leveraging ocean space and existing industry infrastructure while avoiding many user conflicts.

Weaknesses:
Offshore salmon farming requires ambitious, large-scale efforts, which come with high costs and challenges. Public and private investment cooperation is still needed.

Opportunities:
The first to successfully implement offshore salmon farming will have a significant advantage. The need for remote-operated, offshore-capable systems will create new technology and logistics investment opportunities.

Threats:
Offshore salmon farming faces regulatory uncertainties, as few governments have frameworks for regulating farms in these areas and no clear timeline on when they will have them. Norway is perhaps ahead but still developing policies.

Land-Based Salmon Farming

Strengths:
Land-based systems offer control over the salmon production cycle, avoiding pests and pathogens, simplifying logistics, and reducing user conflicts. They could be a natural extension of existing technology, as salmon already spend a third of their life cycle in these systems.

Weaknesses:
The sector has seen significant cost overruns, biological failures, and bankruptcies. Extending land-based systems to the entire salmon life cycle involves uncharted territory. Using land-based systems in juvenile production is proven and reliable but represents only a small portion of the total biomass. Growing salmon from egg to 250 grams takes about 12 months (30% of the growth cycle) but accounts for only 5% of the biomass required to reach a 5 kg harvest weight. Extending production to the remaining 95% of biomass involves significant challenges.

Opportunities:
The global market's demand for salmon presents a clear opportunity for well-designed and managed land-based systems in the salmon farming industry.

Threats:
These systems remain expensive, and investor confidence has been shaken by failures. Sustainability arguments may overlook concerns like animal welfare, water-table impacts, energy consumption, and land use. Opponents of net pens might target land-based systems next.

Conclusion

In terms of salmon production growth over the next 5-10 years:

5 years:
Expect no significant change in production locations, with 99% of salmon still coming from net pens. Technology and production cycles are long, and no paradigm shift is evident today.

10 years:
Potentially 10% of global salmon production could come from land-based systems, with 2-3% from offshore farms. Floating closed and semi-closed systems will likely complement traditional net pens and offshore salmon farming.

Longer term (15-20 years):
Offshore salmon farming offers the greatest potential for meeting growing demand if an investment structure can be found that dilutes the risks to any single investor and bridges the extraordinarily long pre-revenue period of these projects.

Thank you for reading! Your feedback is welcome.

Alan Cook
Saint John, NB