‘Teslas’ versus ‘gas engines’: Will salmon farmershave to invest in land-based to keep up?

Undercurrent News‘ most recent webinar yielded some interesting debate on how soon, if at all, land-based salmon farming will hurt the competitiveness of traditionally grown fish.

Experts from the world of seafood mergers and acquisitions (M&A) were split on whether salmon aquaculture companies should be worried about the rise of rms like Atlantic Sapphire in the US. 

“The smaller players — how are they going to manage to compete with the land-based players, for example, in the US?” Asked Ignacio Kleiman of Antarctica Advisors, aiming his question at peers based in Iceland and Norway. 

“I can understand how the large Norwegian [companies] can, but how are smaller players going to compete? Because they probably have much higher costs than the land-based players, at least in the US.”

Magnus Bjarnason, of Iceland’s MAR Advisors, was not too worried, noting that farmed salmon was a global commodity market and that everybody competes with each other already. He also pointed out that there might be some consolidation in Norway among smaller farmers which have  felt “vulnerable” during the coronavirus pandemic, perhaps prompting more cooperation as seen with Salmon Group, a network of family-owned aquaculture companies.

“That might be the traditional model, but the risk here is, you have the ‘Teslas’ of salmon coming up, and they are going to disrupt the market as they suddenly starting to churn out some sh,”Kleiman argued. “They are right next to the large population centers. Then, how are the traditional ‘gas engine’ type producers going to react to that? I still don’t know.”

You can watch the full webinar — What to expect of salmon M&A in a tough year here

While the up-and-coming land-based salmon projects may only be looking to take 5% or 10% of the US market each, if several of those come to fruition, that becomes a substantial portion of supply produced domestically, he noted. 

“The Norwegians are going to react, they have a lot of money. The Chileans are going to react and they have a lot of money too,” he said. “I think the right move for some of the traditional players is to make the ‘General Motors’ move — you will have to go and buy into and invest in some of these land-based guys to get ahead of the game.”

“Otherwise, you’re going to be driving a tradition model, in a world where there’s disruption going on and you just kind of ignore it.”

Kjetil Haga, of Norway’s Bluefront Equity, put forward the suggestion that Mowi was already the largest land-based salmon farmer in the world, based on the number of sh they have in recirculating aquaculture system facilities (RAS) — for raising smolt.

“I see a lot of competence development in R&D [research and development] happening inside certain smolt facilities around the world. So from our perspective, all large farmers are just experimenting and building competence, ready to make the move when the time is right,” he said.

“When it comes to the new players, the ‘Teslas’ — I don’t see volumes coming out in the market which will disrupt price in the near future.”

For now, he said, those RAS players that are at a commercial scale are being fairly cautious and running at perhaps 50% of their designed capacity; that would be the case for a few years yet, he reckoned.

Before founding Bluefront, Haga used to be a board member with Billund Aquaculture, one of the earliest companies to begin manufacturing equipment for farming sh on land. With that experience in mind, he said, land-based units tend to follow a “two-plus-two-plus-two” model: 

“Two years of just planning, two years of building, and at least two years to get the facility up and running. In the future, of course, the supply-demand curves will meet, and it will be an issue forNorwegian airborne salmon. But at the current pace we are at, I don’t see any issues in the five-year future, for Norwegian salmon to not be competitive when it comes to price.”

He also feels that, when it comes to land-based RAS, “it’s all about scale — and I haven’t seen anyone producing at such a scale which will actually meet the costs seen in Norway [traditional farming] yet”.

“We haven’t seen costs comparable with that yet, it’s still all just an Excel spreadsheet. So, it’s along way to go for me, yet.”

Kleiman was unconvinced, though, suggesting that land-based volumes will be having an impact on the market much sooner than this, and that “if I were a small player, I would be very worried”.

“I’m much more optimistic that land-based is going to grow much faster because they are learning very fast from the mistakes made in the past by other people,” he added.

Bjarnason suggested this was a good thing, as global demand for salmon was on the rise — likely even more so after 2020’s retail boost and lower prices. 

 UCN webinar: What to expect of salmon M&A in a tough year

Alpha Corporate Finance’s Jorgen Horntvedt also felt the sector is more than three-to-five years away from any volumes that were significant enough to impact the market price.

Still, Kleiman was undeterred. He freely offered advice to Chilean salmon farming CEOs with cash to spend.

“I’d take $25 million or $50m and invest in two of three of these [US land-based projects]. Try to get ahead with a winner. Tesla shares are going to one thousand bucks — imagine if you’d bought at $25,” Kleiman said.