The global aquaculture sector boasts annual growth of almost 6%, and fish farming has overtaken wild fishing as the main provider of seafood on our plates since 2014, noted a report produced by FAIRR (Farm Animal Investment Risk and Return), a network backed by investors managing over $12 trillion of assets.
But the report, named ‘Shallow returns?’, warned that much of the growth was based on more intensive, high-density farming, and that a failure to manage environmental, social and governance (ESG) risks could undermine growth in the global fish farming sector.
Maria Lettini, Director of FAIRR, said: “Investors should be aware of the sustainability risks in the aquaculture sector before they wade in too deeply. From effluents to emissions, this sector must address significant environmental and public health challenges if it is to prosper over the long-term.”
The major issues highlighted by the report included:
The fish sector is both a significant contributor to climate change and is highly exposed to its impacts, the report claimed. Farmed marine fish production in Southeast Asia, one of the world’s biggest aquaculture regions, is expected to drop up to 30% by 2050 due to rising sea temperatures and ocean acidification, it said.
Norway is currently suffering from its worst algal bloom in 30 years, which has killed an estimated 8 million salmon so far, noted the report. In 2016, harmful algae caused an estimated $800 million in damage to the Chilean salmon industry when they killed nearly 27 million fish – around 20% of the country’s salmon production that year.
FAIRR’s report discovered that in some regions, aquaculture companies rely on excessive use of antibiotics to maintain production, leaving the sector highly exposed to global efforts to fight antibiotic resistance. “Chilean salmon production, for example, is estimated to use antibiotic doses up to 10 times higher than typically used in chicken production,” it said.
Fish feed supply
Farmed salmon and shrimp require fishmeal and fish oil in their diets, making the sector highly dependent on rapidly-depleting wild fish stocks for future growth. According to the report, the numbers do not add up. “If we are to expand aquaculture production to meet global demand, probably doubling it by 2050, then this will put considerable pressure on global fish stocks,” it said.
Lack of transparency
Recent governance scandals illustrate the limited transparency in the sector, the group suggested. In April, US companies filed a class-action lawsuit accusing some Norwegian farmed salmon firms of conspiring to fix the prices of farmed salmon.
Research in six European countries from 2007-2009 found nearly nine million fish escaped from farms, resulting in a direct product loss of $47.5 million, the report claimed. In addition to direct financial losses, farmed fish escapees can cause harmful impacts to their wild counterparts.
There are investment opportunities in areas such as fish health innovations and alternative feeds
But the report highlighted a number of innovations in the sector that present investment opportunities as assets as ESG funds surge.
“Investors have been watching the aquaculture sector with growing interest and are closely following the development of many potentially game-changing innovations such as advanced production systems and alternative feed ingredients,” said Lettini. “These innovations could disrupt the aquaculture sector if they succeed in addressing the sector’s critical sustainability challenges.”
Cell-cultured seafood ‘may develop faster than poultry or meat’
As of August 2018, just four companies had focused on cultivating cells from fish or other marine animals, according to the Good Food Institute. But while fewer companies are developing cell-cultured seafood than poultry or meat, research suggests cell-cultured seafood may develop faster, according to FAIRR.
The process has lower energy requirements than cell-culture of terrestrial animal protein, said the FAIRR report. It added that cell-cultured fish is structurally much simpler than land animal meat, which makes it easier to replicate in cellular production methods.
It noted that Shiok Meats, a Singapore-based company that aims to bring a cell-based shrimp product to market in the next five years had raised $4.6 million in seed funding, led by investor Monde Nissin Corporation, owner of Quorn Foods.
Plant-based seafood products
New plant-based products being developed that imitate seafood were also an exciting investment opportunity, said the report.
Plant-based seafood brand Sophie’s Kitchen reported a 72% jump in sales from Q1 2017 compared with Q1 2018, “demonstrating early consumer and corporate appetite for its products,” FAIRR’s report said.
It said emerging vegan seafood company Good Catch Foods was also attracting attention from mainstream animal protein producers. In August 2018, Good Catch Foods closed an $8.7 million Series A funding round including investment from PHW Group, a European poultry processor.
It added that Quorn Foods, an established player in the meat alternative market and which launched a new range of plant-based ‘Fishless Fillets’ in March 2019, had reported that “its vegan products typically outsell the rest of the frozen meat-free category by a factor of 10.”
As salmon and shrimp require fishmeal and fish oil in their diets, FAIRR noted that feed producers and startup companies are exploring alternative ingredients that can provide the protein and omega-3 profile required by these species without relying on fish harvested from the wild.
Repurposing waste as feed
Waste and by-products from agriculture, aquaculture and livestock production are increasingly used as feed ingredients, according to the investor network. “World Bank projections show that if all producing countries integrated fish processing waste into fishmeal production, global fishmeal production would increase by 11.8% and aquaculture production would grow by an additional 1.9% compared to the baseline scenario,” it said.
Fish oil replacement from algae
Fish oil is an excellent source of omega-3 fatty acids or DHA, but with rising prices of forage fish, FAIRR noted that the feed industry was seeking alternate sources of omega-3 fatty acids. “Companies are pioneering ways to produce omega-3 fatty acids (essential in salmon diets) from heterotrophic algae which require no light and can be produced efficiently and in greater quantities than light-dependent algae,” it stated.
Single cell proteins
While still in early stages of development, FAIRR found several companies innovating to produce single cell proteins for aquafeed.
“Single cell proteins are proteins from the cells of microorganisms such as yeast, fungi, bacteria and algae. They can potentially reduce GHG emissions by converting methane to protein with minimal water and space,” it said.
It noted that Thai Union Group is trialling the use of these feeds, produced by Calysta, to replace the wild-caught fish ingredients in its shrimp feed.
FAIRR predicted that insects were poised to become major alternatives to fish feeds, owing to their low input and exponential growth. “Several studies show that fly larvae are excellent nutrient sources for Atlantic salmon and other high-value species,” said the report. “The Dutch agribank Rabobank sees insects as a major area of growth and estimates the share of feed alternatives to jump to 500,000 metric tonnes by 2022.”