The opportunities in fisheries

High prices and inefficiencies in the sector have brought private investor attention to the fisheries sector, according to a Rabobank analyst and investment banker.

Farmed salmon prices are set to remain high in the wake of an under-supply in the fish from northern European markets such as Norway and this is creating private investment opportunities, according to Gorjan Nikolik, food and agribusiness research advisor at Rabobank and author of a recent report on the topic.

With very few farmed salmon producing markets around the world, Chile, Norway, Canada and Scotland, salmon farming is lucrative but the market is dominated by listed companies such as Marine Harvest, a Norwegian company owned by Norway’s richest man, Olav Thon, and listed on the New York stock exchange and the Oslo stock exchange. Marine Harvest holds a 21 percent share of the farmer salmon market, according to various estimates.

But there is room for private investment to help create a more efficient market, argues Nikolik, although it is most likely to come from early stage investors in the first instance because the sector is still relatively untapped, he added.

“I think we’ll see more interest from venture capital firms who see opportunities in improving the salmon business model,” he said, adding that improvements could be made in the pricing of salmon feed, for example. “There are various emerging technologies which could potently reduce the fish meal and fish oil content in salmon feed [making it cheaper]. These could be produced from farmed insects, algae or seaweeds or other innovative sources,” said Nikolik.

Private investment is already making headway in the general fisheries sector, according to Torsten Böehler, managing director at specialist investment banking firm Abacus. And technology is generally the top area of interest in the sector, he added.

“A project which we’re pitching to investors currently is an aquaculture company using recirculation technology along with genetic breeding – both key to the industry becoming more efficient,” he told Agri Investor. “Traditional fisheries methods require 70 percent freshwater in order to farm the fish, and this often brings in algae and other things, making the water toxic. Recirculation technology reduces this need for fresh water significantly.”

Features of the market that can put investors off include a reliance on continued strong demand from the EU and the US and legislation that can restrict fishing activity, especially in the developed markets where ruling officials are concerned about overfishing.

But those investors, who have taken the plunge, have seen the benefits of government and EU-wide regulation. “Regulation of the industry can reduce the chance of disease and poor sanitary conditions. With increasing regulations investors gain comfort in the sector,” said Nikolik.

Farmed salmon’s investment potential is also hampered by its prevalence in developed markets, where salmon is already well established and financed by the large companies operating in it according to Nikolik. But sharing the field with large listed entities is no bad thing, he added. “Private investors and public equity are not in competition. Private investors can benefit from the existence of listed companies as this makes information on the sector, such as historical trends and valuations, more accessible,” he said.

fishingSource: Kontali, Rabobank 2014