Wednesday, 7 March 2018

On-land Prospects - 'Have Never Looked Better' - DNB

DNB Bank from Norway released a paper in 2017 on the prospects for on-land fish farms:

According to them, things 'have never looked better'.

"Prospects have never looked better. With supply growth from traditional salmon farming dwindling  due to biological concerns and tighter regulatory controls and the cost of acquiring new licences skyrocketing, the prospects for non-traditional farming, such as land-based, look better than ever in our view. With low supply growth, salmon prices are likely to stay high for the next two years, reducing the risk of a price collapse before volumes from a land-based project reach the market. At the same time, production costs for traditional and land-based farming are starting to converge as biological costs for sea-based farming increase and technological advances reduce land-based costs"
The big Norwegian fish farms, Marine Harvest, Cermaq and Grieg Seafood, have always said that on-land is a non-starter because it costs too much to get to harvest. And of course they were wrong, and wanted to stay in the ocean because they could/can flush their sewage, lice, diseases, chemicals and so on away for free, something that consumers have increasing said no to. We taxpayers absorb this huge cost that I estimate is $10.4B for BC alone. See this post as it shows how I made the calculation and also notes that the other end of conservative is three times as much, yes, more than $30 Billion sewage cost in BC:
On-land does away with the sewage cost as the sewage is used as a revenue stream, producing methane/electricity or sold as fertilizer, among other uses. And in the case of Canada the three new farms coming on stream in the USA, Atlantic Sapphire, Whole Oceans and the third in Belfast Maine, have transport costs on their sides as well, meaning a severe impact on in-ocean fish farms and their employment as the biggest market, the USA, will be taken away from them.
The DNB report goes on to say they looked at 20 operations, ignoring that I have now found 218 on-land fish farm systems:

I have asked them for their list and will let you know whether they are on my list or not. 

DNB's next point is:

"Substantial advances in recirculation technology. Recirculating aquaculture systems (RAS) have seen significant technological improvements over the past 5–10 years. Paradoxically, these advances have been driven by the large investments in smolt production made by traditional salmon farmers. The switch from ‘flow through’ systems to ‘recirculation’ has reduced water need by 99% and in recirculation the effectiveness has increased 3–4x since 2008. Research suggests an estimated production costs for a mid-sized (3-5kt) land-based facility at NOK37/kg, close to
traditional sea-based farming."

Note that the sale price of in-ocean Norwegian exceeded NOK 66 in 2018, or $10.56/kilo. You will note the significant differential, leading to large profits. Furthermore, DNB notes that 'challenges' meaning disease, lice and other costly factors are making the cost per kilo production come to meet one another of in-ocean and on-land.

"We identify 150kt of land-based projects in the pipeline by 2020. We have carried out a deep dive into land-based projects and identified planned production of 150kt by 2020 from 20+ projects around the world. About 10 projects produced a combined ~7kt in 2016. If all planned land-based expansion materialises, land-based production in 2020 would rival the output from Canada and make land-based the fourth largest ‘region'."

Note that what is not stated is that they are only dealing in Atlantic Salmon, not the many other species that I have found. This is a typical Norwegian perspective. Looked at as a global industry producing fish, the output is far far above 150KT. But also note that their on-land figure - far lower than the actual for all species - will rival  Canada (west and east coat) and make it the ,fourth largest region'. In other words, the writing is on the wall and Canadian production is going to suffer a very large negative for sales into the USA (AS, Whole Oceans, Belfast) in only two years.

DNB goes on: "Running the numbers reveals decent risk/reward. We have made internal rate of return (IRR) calculations on land-based versus traditional farming, which suggests attractive
returns for land-based projects where transport advantages exist."

This is precisely the case for Canadian fish farms when compared with the big three coming on stream in the USA. Hasta la Vista BC fish farmers, unless you see the light and move to land right away.

Another interesting sidelight are the suppliers of on-land fish farm products. In order of market share: Billund Aquaculture, Kruger Kaldnes, AKVA Group, Aquatech Solutions,Inter Aqua Advance, Others (Pentair, UK, for example).

On page 31, you will find a cost comparison of in-ocean and on-land, being pretty much the same.

Page 36 shows there are 90 on-land facilities in Norway.

Page 37 shows the companies using RAS for smolt production.

On page 49 the paper discusses the licence situation in Norway:

"Will development licences increase Norwegian production volumes by 30%+?

The opportunity to apply for development licences in Norway is a government initiative to foster  innovation. The current number of development licences awaiting an outcome has reached 304 (18+ awarded already). 30%+ of additional volume would be added if all these applications were accepted. So far, we have observed the approval process to be quite lengthy. Six applications totalling 41 licences have been rejected so far (source: Directorate of Fisheries). The process along with a tightly defined scope including the criteria of a unique and innovative concept means it will take some time before volumes hit the market and we expect the number of awarded licences to be restricted."
You will recall that Norway cut off in-ocean licences in 2014 because it grew fed up with the environmental damage caused by in-ocean fish farming.

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