Finding a place for aquaculture

As the aquaculture industry weighs whether its future is onshore, in the open-ocean or both, private equity investors have an opportunity to help develop a market seen as key to meeting future protein demand.

A May report from The Nature Conservancy has named aquaculture – the commercial production of finfish, shellfish and seaweed – as the world’s fastest-growing form of food production. The report described a $243.5 billion industry that will conservatively require an additional $150 billion to $300 billion in capital by 2030, when aquaculture is expected to play a key role in sustainably meeting global protein demand.

An exotic sub-sector just a few years ago – even among protein-focused investors – seafood is currently seen as one of the most attractive ag opportunities. Perhaps unsurprisingly, private equity interest in the market emerged as an important theme at IntraFish’s 2019 Seafood Investors Forum, held in in New York in late May.

Though in many ways distinct from land-based counterparts, seafood investment markets raise fundamentally similar questions: about the interactions of finance, culture and climate; about the character and location of likely future demand growth; and how producers can keep pace with rapidly-changing consumer demand.

Seafood investors are also confronted with the question of whether there is a fundamental mismatch between the type of capital needed for success and the duration of the traditional private equity fund.

Nevertheless, the forum did reveal at least three areas where private investment could help accelerate the development of the wider aquaculture industry.

The most obvious is fishfeed, where concerns about future supplies of fishmeal and fish oil have inspired efforts to develop alternative protein feedstocks, including carbon, algae and insects. Therese Log Bergjord, chief executive of Norwegian fishfeed provider Skretting, said that while her firm has partnered with select ingredients producers, there is a limit to how much early-stage investment the company can pursue, and more is needed.

Private equity could also play a role in building land-based aquaculture systems. Analysts have stated confidently the latter will prevail over offshore systems in the long-term, but investors have often been slowed by regulation, which is likely to keep most operations in the sea for the foreseeable future.

Erik Heim, president of Nordic Aquafarms, a European company currently pursuing onshore aquaculture projects in Maine and California, discussed the challenge of managing relations with surrounding communities and onerous permitting processes. Amid the excitement that currently surrounds aquaculture, Heim said, some investors have entered the market without fully understanding the biological complexity and financing needs of successful projects.

“As the industry starts maturing, like any other industry, some of these barriers will be coming down,” he said. “More expertise, more people coming into the market; this is a gradual process.”

A related area where private capital can play a role in the development of aquaculture is through efforts to shape consumer demand and public support to obtain what moderator Drew Cherry, IntraFish’s editor-in-chief, labeled as a “social license” to operate in specific communities.

One example provided was Cuna del Mar, a family office that in addition to investing more than $100 million into open-ocean aquaculture has also created an advocacy organization to educate the public about the benefits of an increase in domestic seafood production.

Kees Aarts, founder and chief executive of insect-derived protein provider Protix, said the current dialogues around “social license” to operate and sustainability in seafood reflected a broader generational dialogue about how the world’s food system should function.

“When you run a company, you have lofty goals like being a ‘values-based company’ and so on. But more and more it seems like we are also living in a society that doesn’t value anything, the exception being the younger generation,” he said. “The question is, how will that young generation develop and what will that pulling demand look like? And then, how flexible are the vested interests to allow for these new propositions?”

As private equity’s role in the burgeoning global aquaculture market continues to expand, managers casting their net for opportunities should keep the corners of the market highlighted at the Seafood Investors Forum in mind.