Events

Danish Fish Tech Exporters Association meeting

Conference venue in Skjerne, Denmark with a nice Father Christmas!

I traveled to Jutland, the largest part of Denmark, for a meeting of the Danish Fish Tech Exporters Association. This is an impressive audience of RAS specialists to all types of actors in the seafood industry. We visited a RAS trout farm near Skjerne. A lot of the talk was about this technology and the opportunity for Danish companies to capture opportunities to install these systems in high-growth markets.

My presentation was on opportunities in global markets including China, India and Chile. And really nicely summed up conclusions from the China Fisheries & Seafood Expo in Qingdao. Get in touch if you like to receive a copy of my presentation. I even managed to get in a couple of meetings while changing planes in Copenhagen. Next stop Oslo! — Matt

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South Korea, North Korea and Siberia: promising salmon farming region

I got a tip from Norwegian equity analyst Christian Olsen at Kepler Cheuvreux that there was a potentially disruptive South Korean salmon company farming salmon offshore. As Seoul is a short hop over the Yellow Sea from Qingdao and the China Seafood conference, I decided to investigate further. 
 
Donghae STP was enormously accommodating and planned a meticulous agenda for my visit. I already knew what a well organized and impressive country South Korea is after having visited Seoul while working for Bloomberg in 2005. It’s developed even more since then, and seems a step ahead of most of northern European countries in development. 

What surprised me is the level of collaboration among South Korean companies. STP Donghae for a start-up, receives considerable government support. The International Copper Association has developed a unique cage that allows salmon to be submerged during the hottest summer months. This is key given the area is prone to typhoons and near-surface are too hot for salmon, in the summer months. 

Anton Semikin, a major player in the Russian Far East wild salmon market and the controlling shareholder of Donghae, believes salmon could be farmed from the northeast of South Korea, all of North Korea and the southeast corner of Russia around Vladivostok. It might even be believers to place sea cages right up in the sheltered seas between Siberia and Sakhalin Island, he said.

Here was my story for Undercurrent News on the subject, and South Korea also features strongly in the Aquaculture Frontiers report on salmon (available via Undercurrent News). 

Events

Spheric Research at the China Fisheries & Seafood Expo 2018

This year I joined the staff of Undercurrent News at this major seafood event in Qingdao, China. First thoughts are it’s quite remarkable to observe the development of even a so-called Tier II city such as Qingdao. Touching down on a crisp-cold November evening, Qingdao from above looks like Las Vegas with flashy neon-lighted hotels and massive highways.

The Qingdao International Expo is cavernous. It was recently used to stage a trade fair between China and Russia. Several halls were dedicated to the Chinese seafood industry. International expositors took up a very small chunk of portion of the floor space.

One thing that strikes visitors to this expo is the sheer number of international companies that are selling seafood to China. I was amazed to see sellers of Irish oysters, and Canadian clams. Chinese consumers are hoovering up seafood everywhere.

The talk of the town at this event was the clampdown on the unofficial shrimp route through northern Vietnam. Several traders were arrested on the eve of the event, causing consternation among Ecuadorian and Indian shrimp exporters. The exporters had sold dozens of containers of shrimp by the end of the week, easing fears that the Vietnamese clampdown will hurt shrimp trade. Read my story on this on Undercurrent News here:
China spooks shrimp market with arrests linked to Vietnamese trade route

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Bi-annual AquaSur event — a salmon fest with an omega-3 focus this year

Salmon executives are treated to the impressive volcano views of Puerto Varas when they visit the bi-annual AquaSur event in southern Chile. AquaSur rotates with the AquaNor salmon trade fair, which is traditionally held in Trondheim, Norway.
The theme this year was unquestionably the future of omega-3 feed ingredients in the salmon industry. Veramaris, the joint venture of Royal DSM and Evonik Industries, Corbion, and Cargill arrived this year with evening parties and a strategic offensive to wean salmon companies off fish oil. 
The entry of novel omega-3 ingredients couldn’t come at a better time for the industry. There have been three consecutive of poor harvests in Peru, the world’s largest supplier, because of El Nino. Arguably the world news story was the realization that the world’s oceans are full of plastic. Consumers are slowly beginning to question the safety of wild-caught seafood because of this. Also, scientists from Nofima have begun to question the theory that salmon can thrive with a diet comprising less than 10% fish oil. 
It took me a while to write this story for UCN, but this summarizes the current push from the novel omega-3 supply side:
Algal oil in salmon a hit, only needs scale to go mainstream

Events

Spheric Research heads to GOAL 2018 in Guayaquil, Ecuador

Guayaquil is the shrimp exporting hub of the Americas. We headed to the annual GOAL event, which is organized by the Global Aquaculture Alliance and brings together leading executives and thinkers from the seafood industry.

There was a heavy emphasis on shrimp this year considering the destination and SR was busy at work researching Aquaculture Frontiers: Part 3, which is all about the world’s favorite crustacean. I visited the new processing facility of Omarsa with my colleague at Undercurrent News, Jason Smith.

You can read his write-up of Omarsa’s new high-tech processing facility here: Omarsa sees value-added future as new plant nears completion

News

Cargill’s canola omega-3 crop program in Montana state 🇺🇸

Back in June I collected my MBA degree in New York and headed to Montana state to visit Cargill’s canola omega-3 crop program in Montana state. Growing omega-3 on the Great Plains to feed Atlantic salmon in the fjords of Norway and Chile is a remarkable development.

Montana farmers are on the periphery of America’s best farmland soil. The best farming area is nestled below the Rockies Mountains where irrigation ditches provide year round water. This area is called the Golden Triangle has been a long-term supplier of barley to Anheuser Busch and MillerCoors. Just lately, farmers have been losing their long-term supply contracts to the big brewers and have had a tough time with alternative crops such as chickpeas and lentils (hundreds and thousands of tons of lentils were returned from India because of oversupply). The next best play in town if you are a farmer is to house a nuclear warhead. As one of most inland part of the United States and home to the Air Force, America has a significant amount of its nuclear arsenal position in secret locations dotted throughout Montana’s farmland.

Cargill’s opening of a research facility on the outskirts of Great Falls is also a homecoming of sorts. The company built most of the state’s irrigation ditches a century ago, but was forced to leave the state decades ago as part of an M&A deal. Many of the state’s old grain loading facilities are still the largest buildings in most Montana farming towns, casting ghostly silhouettes over this back country. Cargill built its new facility dedicated to omega-3 canola crops in the fashion of an old grain loader, in what it considers a homecoming to the state.

I enjoyed a fantastic road trip to the Cargill site, renting a vehicle in Denver and driving through most of Montana and the Yellowstone National Park, where I saw Ibex playing in the snow and bison roaming the roads through the park.

Check out my story on Cargill’s omega-3 plans in Montana for Undercurrent News.

Events

Seafood Expo North America 🇺🇸

This was my first visit to SENA. I don’t have the hindsight of previous visits, but I suspect that we are seeing a quiet revolution in the world of aquaculture, led by land-based farming entrepreneurs who are finally succeeding with this model of fish farming.

One of the most intriguing visits I did at SENA was to the stand of Hudson Valley Fish Farm. Entrepreneur Sam Chen had his steelhead fish harvested at 4am that morning, and trucked over from the farm site near near Albany in NY state to Boston. They looked exceptionally fresh, and made the advantages of recirculating aquaculture systems (RAS) farming all too obvious.

What was striking was the diversity of fish on offer, and species that might not have been available a couple of years ago. Take Dyer Aqua, a farm in Panama’s Bocas del Toro estuary that is now churning out farm-raised pompano. The Dyer team had been working on raising Florida pompano, a popular fish and convenient for cooks with its even thickness fillets, since the 1990s. Their Florida farm was destroyed by a hurricane a few years ago, and the innovators found a similar tropical climate but less exposure to hurricane weather in the southern reaches of Central America. Now, they’ve finally cracked it.

Aquaculture is providing more fish, and greater diversity of species. At least in the North American market. It’s a trend that was imaginatively captured by Fish 2.0 founder Monica Jain in a futuristic piece on change in the seafood market written back in May 2017. There was lots of M&A talk at the show but there appears to be a rising disconnect with valuations and the amounts that potential acquirers are willing to spend. This was captured in an excellent article by Undercurrent’s Americas editor Jason Smith

Land farming, however, was a big theme at the show. Kingfish Zeeland, which has built a huge yellowtail farm in the Netherlands, announced to me that they will build a plant on US shores. Read the Undercurrent News story here. I traveled to Maine to inspect the future sites of land-based salmon farms.

Now for the behind the scenes stuff. Firstly, it is hugely tiring tearing around between meetings at the 516,000 square feet Boston Convention and Exhibition Center. Going from the exhibition stands to the adjoining Westin Hotel can be a 20-minute indoor walk. Being able to do walks indoors of course was a big bonus this week, as a fierce nor’easter dumped a foot of snow on Boston and closed down most of the city. The show kept going valiantly through the storm, although a few executives, especially those familiar with the harshness of the weather in the U.S. Northeast, changed their flights and got out of town before the worst of it. I’m looking forward to coming back next year!

Spheric Research - Lets get down to food.
News

A visit to India and Mangalore’s fishing industry 🇮🇳

Visiting India for the first time was a fascinating experience. I’m sure everyone has their own tales to tell, but let’s get down to food, and seafood.

Indian is about 90% vegetarian and even a trip to an Indian McDonalds tells that story: the franchise advertises a host of vegetarian style burgers that I didn’t get the time to try but would have loved to see how the national franchise makes vegetarian food exciting (something India absolutely excels at).

Chickpeas is the main source of protein and it’s normally found in the ubiquitous chola, essentially a mildly-spiced chickpea curry served with Indian bread. Dhal is ubiquitous. It’s even served as the one and only dish on Jet Airways domestic flights with tea, and surprisingly, a Kit Kat!

Over the next few days, I enjoyed eating a wide range of vegetarian dishes. This reminded me of a conversation I had last year with Simon Billing, who runs the Protein Challenge — an initiative by non-profit Forum for the Future. The challenge has the ambitious goal of making sure a growing world population has adequate access to protein by 2040. For the Forum for the Future, making vegetarian food every bit as appealing as dishes containing animal protein is as important as promoting novel protein sources, for example, and the forum has enlisted top chefs to help achieve this goal. Surely gathering some of these fantastic recipes from India will be a key part of that challenge.

Louis Dreyfus CEO Gonzalo Ramirez said earlier this year that texturized vegetable protein (TVG) could experience a second wave of growth with more sophisticated products targeted at this market rapidly expanding market. India could be a great market for this segment, he said. Proponents of the so-called plant-based alternative protein market, which has risen so sharply to prominence in the past year, offers Indians with rising incomes culinary alternatives without having the to eat meat. This would bypass the traditional trend of rising GDP resulting in more meat and fish consumption.

The small minority of Indians who like to eat meat — and they number significantly more than 100 million — are surprisingly indulgent. The issue of protein deficiency in India however is a massive topic. According a recent Times of India article, most of the country is protein deficient and most people don’t know what the ideal protein intake is. Cereal constitutes 60% of an average diet, and that means that the little protein in the diet is lacking in key amino acids such as methionine, crucial for growth and tissue repair.

As a long-time resident of a South American country, and traveling in tow with my MBA colleague Julio Zavaleta (a resident of Lima), we were expecting to take scenes in our stride. However, we were both shocked by the state of the urban homeless poor. It was significantly higher than Peru and starkly different to Chile. We also found worse traffic than Lima, much to our amusement.

Protein deficiency is slightly less of an issue in some coastal areas that are rich in fish stocks. India is most likely a massive consumer of fish in coastal areas. But the lack of cold storage in the country means most of that fish is consumed at knock-down prices ports and seaside towns. The Arabian Sea is richer in marine diversity than the Bay of Bengal to the east of the country. This would explain why the city of Chennai appears in the above-mentioned Times of India article is one of the most protein deficient in the country. A local delicacy in Mangalore, which I visited, is pomfret served as a Mangalorean curry with coconut. Absolutely delicious!

Mangalore is the hub of India’s fishmeal industry and indeed this stretch of southwest coast in the state of Karnataka (just south of Goa), is incredibly rich in sardines. That said, India’s overall shrimp industry is growing at an alarmingly fast rate and seemingly causing a local shortage of core ingredient fishmeal as I detailed for Undercurrent News, in both a news story and the feed innovation report.

India’s insatiable demand for fishmeal has led top suppliers such as Mukka Seafoods to source from Africa and Oman. You have to wonder that the entry of the feed industry’s big guns — Cargill, Thai Union, and Charoen Pokphand Foods (CPF) — might professionalize the supply chain and take the strain off local fishmeal supplies.

It’s of no surprise that India — weeks after my visit — announced a fisheries improvement project (FIP). Cargill doesn’t readily buy into a supply chain that could be purchasing sardines out of war torn Yemen, or from West Africa to be fed to Indian shrimp that end up on dinner plates in Oklahoma. My guess is that the government of Narendra Modi to announce formal fishing quotas in the not too distant future — like Peru does.

Right now, Thailand has absorbed all of the attention of the folks who look at  sustainability issues in south and southeast Asia. But a smart government will know that the spotlight will soon swing elsewhere in a region that needs to up its game in both the sustainability of wild capture fisheries and aquaculture practices.

Next week Spheric Research will blog from Shanghai. Look out for it!

Spheric Research at AquaNor 2017, Trondheim, Norway.
Events

Summing up AquaNor 2017 🇳🇴

Matt just returned from Trondheim, Norway and a busy four days at the salmon industry’s biannual get together, working on the forthcoming feed report to be published by Undercurrent News.

The salmon industry is booming, and hundreds of service providers want a piece of the action, selling everything from life jackets to gigantic offshore cages that have been crafted from companies that specialize in oil and gas rigs.

Salmon prices are at a multi-year high and producers are selling all the fish they farm. Prices shot up to over $7 a kilo last year when Chile, the No. 2 producer behind Norway, suffered a strange and devastating outbreak of algal bloom in its southern fjords, killing millions of fish. The episode, apparently spurred by the warming of the southeast Pacific Ocean explained by El Niño, led to the biggest supply disruption in recent history.

Therein lies the challenge of salmon farming. It is still a tricky, complex business that is prone to deadly illnesses and other natural disasters, wiping out entire harvests indiscriminately. Farmed salmon replicates the life cycle of wild salmon. Over the course of three years, fish are raised from eggs, or broodstock, to smolt size. Then after a year, they are lowered into sea cages, after spending their first two years in a freshwater environment. This traditional rule of thumb was the subject of much debate at AquaNor. Most farms used recirculating aquaculture systems (RAS) to grow younger fish — and the general thought is that these fish could spend more of their times in tanks and less time out of sea, where they are susceptible to picking up sea lice. However, several companies spoke of failures with experimentation of prolonged time in tanks.

The silvery, pink-fleshed Atlantic salmon is the most common and by far the most widely sold in North America and Europe. Japan has a preference for the smaller and rounder Coho or Pacific salmon that mostly gets carved up into sushi products.

Even in the current climate of red hot prices, virtually every producer in the world is facing some kind of supply problem. Norway, Scotland and some producers on the western coast of Ireland are all struggling with greater than usual amounts of sea lice that attach themselves onto the fish and make them weaker, leaving them prone to other illnesses. Chile, on the other side of the world, faces the challenge of salmon rickettsial syndrome (SRS), another weakening disease that requires heavy antibiotic use — leading to negative press in the United States. On top of that, salmon demand is inelastic. When prices go high, they start to fall because salmon competes directly with chicken, pork and beef for space on dinner plates, even in the most developed nations.

The salmon industry is looking for the next big technological breakthrough that allows to stabilize supply at greater quantities and with lower costs. AquaNor showed the industry is working 24/7 to find solutions, from an engineering perspective, both from the world of genetics and biotech. With such a hugely popular product and seemingly boundless demand (if the price is right), the prize is great. A silver bullet solution for sea lice, for example a vaccine, would be a massive boost to the industry.

The salmon industry is limited to small numbers of coastal sites in countries that have suitable conditions of cold ocean waters and mazes of inlets and fjords that offer low currents for the fish to thrive. These select sites are almost always beauty spots in temperate latitudes and farms are met with resistance in almost every place where they are present, barring possibly the Faroe Islands. These islanders, I’m told, see the salmon industry as a core part of their economy and hence survival in these cold, remote islands.

Norway has just about run out of space, and can only look further out to sea. Several producers have begun to develop new technologies from floating steel structures looking like eggs and donuts that have been developed using subsea oil and gas technology.

SalMar, a major Norwegian producer, is about to kick off the advent of offshore salmon farming by installing its massive Oceam Farm 1 later this year off the Norwegian coast. The giant, ring, that was developed by a Chinese shipbuilding yard, was mistaken for a spaceship when it was temporarily moored in a South African port on its way to rainy Trondheim. Southern Chile is one of the very few areas of the world that has an entirely new area suitable for salmon farming at the southern tip of Patagonia, but licensing is slow to emerge from a government mindful of earlier disease outbreaks that have been attributed to rapid expansions in fish populations. The industry has had a fractious relationship with Marcelo Mena, the environment minister of Chile, who has called for curbs on salmon farming in this remote area called Magallanes.

The technology that breaks the salmon farming CEO into a cold sweat is however RAS.  RAS systems could technically be used to grow fish to market, size, although the size of the tanks required make this almost prohibitively expensive. They cost in excess of $20m, and have to run by specialized (read Norwegian-trained) engineers who know how to operate them. According to the Shepherdstown, West Virginia-based Freshwater Institute, RAS systems are still prone to pathogens (like any environment where intense farming is practiced). Once they get inside a RAS farm, basically everything dies.

The holy grail for the global industry is the Faroe Islands that produces disease free salmon, albeit from a few sites. New areas of the world, such as Russia’s Kura Peninula, Iceland, or Chile’s southernmost Magallanes, could be the next Faroe Islands. But other things, such as a sea lice vaccine, better economics on RAS or offshore breakthroughs, could lift the anchor on global salmon supply. The lifting of that anchor will also be contingent on the world discovering a new source of omega-3 fatty acids, currently sourced from wild capture fish.

News

FT Commodities Summit in Buenos Aires 🇦🇷

This is my first blog post for Spheric Research. SR has just attended a Financial Times event on Argentina’s massive resource potential. I would define these resources as belonging to four main groups:
  • The country’s vast farming plains that yield enough grain and oilseed to feed dozens of countries
  • The massive shale oil and gas deposits of western Argentina centered around the so-called Vaca Muerta fields
  • The Argentine side of the Andes Mountains that probably hold several giant copper and gold deposits common to the Chilean side
  • And finally the renewable energy potential of Argentina, led by the wind-swept plains of Patagonia — the world’s windiest place, according to turbine manufacturer Vestas.
Here’s a summary of where Argentina’s at right now, politically and economically.
If you haven’t followed Argentina’s recent politics, businessman Mauricio Macri won the December 2015 presidential election and announced the country’s decision to re-integrate itself with the global economy following more than a decade of protectionist policies by Cristina Fernandez de Kirchner and her predecessor and late husband Nestor Kirchner.
Macri started off his presidency taking some tough decisions, removing a host of subsidies that propped up the incomes of poorer Argentines under Fernandez. Some wealthier Argentines benefited from the subsidies too, and have been no less vocal in expressing their disillusionment. The payback for voters was a pledge to open the floodgates to investment to unlock vast natural resources and create new jobs. Fernandez’s last years in office were marked by a gradual erosion among her core constituency of poor voters.
The key issue right now is: despite having received tens of billions of dollars of investment pledges from a host of major companies including Coca-Cola Inc, Dow Chemical Inc. and Royal Dutch Shell, the trickle-down effect to ordinary Argentines is not coming fast enough for Macri, who faces the prospect of the reemergence of Fernandez as a senator in the mid term elections this October.
“If she wins then the perception will be that populism is coming back,” Argentine economist Miguel Kiguel told the FT’s Latin American editor Jean Paul Rathbone. “If she loses, that will be the end of populism in Argentina.”
Seemingly unaware of this very high level conference taking place at the Four Seasons Hotel on the the main 9 de Julio avenue (that of BA’s beacon obelisk fame), hooded protestors armed with crowbars blocked traffic and stood off with police in an apparent stage setting process for the mid-term elections.
The economy surprisingly shed 50,000 jobs lost in April, giving fuel to Cristina’s reemergence as a senatorial candidate.
Jorge Correa, a director of HSBC in Argentina, was frank in his assessment that the continued presence of Fernandez in politics was holding the country back from receiving greater investment.
Despite the face that grain prices are not as high as they were under Kirchner rule, one of the biggest setbacks for Macri is the continued sluggishness in corn and soybean prices. Still faced with the prospect of paying back a massive debt load from previous governments, Macri has retained a 35% tax on soybeans with the backing of farmers to keep a fiscal balance. If Brazil continues to solve logistical bottlenecks by investing in highways from inland farming areas and ports, Argentina may have to reconsider the levy, according to Louis Dreyfus CEO Gonzalo Ramirez.
Therein lies the government’s other main challenge. Corporate taxes amount to about 50%, all but crippling investment for anything other than the country’s biggest exporters. Medium sized companies face considerable challenges in raising debt. The option of raising corporate dollar bonds is not an option for anything less than US$300m, and the domestic bond market has been muted since Fernandez nationalized Argentine pension funds in 2008 to make up for dwindling foreign reserves. That leaves bank credit as the only resource for SMEs. As HSBC’s Correa explained to SR after his speech, there are two main issues with that. One, Argentine SMEs face a considerable tax burden and are rarely profitable. Two, the cost of initiating coverage on a new company is considerable, making the cost of that due diligence excessive in most circumstances.
Before traveling, I was slightly puzzled that Argentina chose to send its transport minister Roberto Dietrich to the FT event, which listed an impressive list of CEOs including Louis Dreyfus’s global CEO Ramirez, and former Bunge CEO Raul Padilla. Dietrich, a tall, and erudite politician who looks more like soccer manager Pep Guardiola than your run-of-the-mill politician, answered a question on the mid term elections with an interesting analogy.
When asked about Macri’s chances, Dietrich referred to the government’s sizeable road building program. And in particular the hundreds of kilometers of ramshackle roads in greater Buenos Aires where several million lower middle class Argentines live. Residents in this area have lived for years with roads that are unusable on rainy days, stopping their kids from going to school. If these voters can sense real change under Macri, then they might be willing to chin the subsidy removals and validate the reforms in the mid terms, he said.
“There are millions of Argentines who are convinced that we are on the right path,” the minister said.