Case Study: The fish have landed

Branzini was never a big seller at Wegmans, an 84-unit Northeast U.S. supermarket chain, until it became a local. Soon after breaking ground in 2008, nascent fish farmer Local Ocean began cultivating the Mediterranean bass, a popular species in fine-dining restaurants, in addition to amberjack, flounder and sea bream. What stood out about Local Ocean was that its farm was a closed-containment saltwater facility in Hudson, N.Y., U.S., about 30 miles (48.2 km) south of the state capital in Albany and some 100 miles from the Atlantic Ocean. The fish it produced quickly generated a lot of buzz in the media and were well received wherever they were served or sold.

Carl Salamone, VP-seafood sustainability for the Rochester, N.Y.-based retailer, loved the quality of the fish and the fact that it was supporting jobs and the local economy. Salamone, who has traveled far and wide to visit the many sources of seafood that Wegmans offers, was excited about the opportunity to connect his customers with not only great-tasting fish but also cutting-edge local aquaculture technology right in their backyard.

“It was a great story,” he said. “So close to us, indoors, totally recirculating system, virtually no waste — and we started selling a bunch of branzini.”

But while the operation produced no waste, it produced no profits either. Last July, the promising venture that some envisioned as a virtual blueprint for the future of fish farming — Local Ocean-produced fish was featured on the July 18, 2011 cover of Time magazine under the headline “The Future of Fish” — came to an abrupt end. Operating at a loss for the entirety of its existence, investors from Mexico and Israel pulled the plug and reportedly left thousands of fish in the water and just two employees to handle a rush of television reporters wondering what happened to the next-big-thing business founded only five years prior. Court documents revealed infighting among the executives and accusations of fiscal mismanagement, but whatever the reasons for the company’s failure, in the end there were simply no more fish to supply a growing new market and to re-energize the notion of aquaculture as a leading solution to global food security.

“We sold all the fish they could produce and were waiting for the next crop to come on,” said Salamone. “We weren’t given a reason. It all went south pretty fast.”

The sudden downfall of Local Ocean was not simply bad news for the company and eager customers like Wegmans and Price Chopper. It was a black eye for the land-based aquaculture industry and ammunition for faultfinders who believe that commercial-scale fish farming must remain in the ocean to remain profitable, despite known environmental impacts and years of harsh criticism from activist groups.

For some, Local Ocean was further evidence that fish farming on land carried great financial risk: too expensive to attract serious, long-term commitment from investors. Yet a handful of land-based operators have succeeded by investing in easy-to-grow species like tilapia or setting their product apart enough to command premium prices.

The ultimate test about the technology’s staying power, however, may not be told by branzini — it will more likely be Atlantic salmon, the most controversial farmed fish species that happens to be a top-seller for retailers like Wegmans. The world is still waiting for someone to prove that this linchpin seafood can be produced not only on land but at a profit.

Beyond experimental
Despite pleas from environmental activists, Canada’s largest domestically owned fish-farming company, Cooke Aquaculture, has seen “no compelling reason” to move its Atlantic salmon production from the ocean to land-based tank farms. While the Blacks Harbour, New Brunswick-based company with CAD 550 million (USD 514 million; EUR 380 million) in 2013 sales utilizes recirculating aquaculture systems (RAS) for most of its hatcheries, and has for 20 years, it moves the fish to sea cages once they are ready for grow-out.

Nell Halse, VP-communications, listed high operational and energy costs, a lack of suitable land, animal welfare concerns (overcrowding) and consumer flavor preferences for sea-raised fish (opposed to fish raised in freshwater alone) as reasons why Cooke does not use RAS technology for the entire life cycle of its salmon. Bringing the fish indoors hardly solves the issue of disease prevention, she added, citing research projects by groups like the Atlantic Salmon Federation (ASF).

“[ASF] were making statements that there are no disease issues on land-based farms but this year they devoted an entire day (of technical workshops) to discussing disease and how to treat salmon on land-based facilities,” she said. “Clearly they are starting to experience the reality of what we have been doing for years … land-based facilities do not eliminate environmental or disease concerns.”

A Gardner-Pinfold Consultants report released in May came to similar conclusions. Submitted to the Nova Scotia Department of Fisheries and Aquaculture, the report found that while research projects like those undertaken by ASF and The Conservation Fund Freshwater Institute (TCFFI) in Shepherdstown, W.Va., U.S., had certainly demonstrated the technological feasibility of land-based aquaculture, the financial viability of growing Atlantic salmon had yet to be definitively proven and that Nova Scotia should pass.

The report determined that land-based systems “operate at an economic disadvantage because much of their cost goes toward creating growing conditions occurring naturally within the ocean, including the chemical properties and temperature of ocean water, as well as current and tidal action that provide waste dispersion services.”

“The challenge of managing environmental impacts and fish health exists on all farms where animals are raised,” added Halse. “It doesn’t matter if you are farming in a barn, a tank, or in the ocean or open field — animals can get sick.”
Yet thus far, environmental and health maintenance are not the primary reasons why land-based salmon aquaculture remains a niche; naturally, it’s money. But an economically viable future in land-based salmon production is not a far-fetched idea, according to Steven Summerfelt, director of aquaculture research systems at TCFFI.

“The up-front cost is high, but a number of entrepreneurs have already built systems while other investors are watching to see what happens with the first movers,” he said.

In a 2013 study comparing start-up costs for a 3,300-metric-ton (MT) indoor, recirculating fish farm and an ocean-sited net-pen farm of similar production capacity, Summerfelt and colleagues from SINTEF Fisheries & Aquaculture in Norway determined that a land-based facility is definitively more expensive: an estimated USD 32 million (EUR 23.5 million) versus USD 12.3 million (EUR 9 million).

And, unless the product can fetch a premium price, the researchers concluded that the return on investment would be lower for a land-based salmon farm. Summerfelt remains undaunted.

“If you listen to the industry, most say it will never work; it’s foolish. But the industry is looking closely at it. At a large scale it works: better feed conversion, better survival, no [Infectious Salmon Anemia], no sea lice, no pancreatic disease and other challenges in the ocean,” he said. “The opportunity to produce fish without antibiotics or vaccinations also helps minimize production costs. But it takes a large scale to start realizing the competitiveness.”

Summerfelt added that any land-based salmon operation would have to produce at minimum 2,500 MT annually to make the numbers work. Currently there are nine land-based operations worldwide, including TCFFI’s, that produce 7,000 MT annually, he estimated. There are a handful of standout sites already: Langsand Laks in Hvide Sande, Denmark, operates on geothermal and wind energy, and the ‘Namgis First Nation’s salmon farm on Northern Vancouver Island in British Columbia, Canada, introduced its Kuterra-branded salmon earlier this year in Safeway stores in western Canada.

TCFFI has produced 30 MT of salmon over the past couple of years and not coincidentally Wegmans has been one of the top buyers. Salamone said the fish was priced at a premium (roughly 30 percent higher) and is positioned pricewise between organic salmon from Ireland and Norway and conventional farmed salmon.

“We had to pay a little more for it but it was a huge success,” he said. “It wasn’t like introducing a fish our customers didn’t know about —salmon is our No. 1 fish. With other species, you really have to make a commitment and put a lot of effort behind [marketing]. You have to constantly tell the story.”

Future fish
Land-based aquaculture has its share of success stories. Blue Ridge Aquaculture in Martinsville, Va., U.S., produces 4 million pounds of tilapia each year that are hormone and antibiotic free. The fish produced at its 100,000 square-foot facility are sold primarily to the live market in major metropolitan areas on the East Coast. But an indoor cobia farm just two hours to the west, however, closed at the end of 2013. Virginia Cobia Farms’ Saltville, Va., U.S., facility and equipment will be auctioned off this fall after the company struggled to get its fish to reach market size.

Bell Aquaculture in Redkey, Ind., U.S., is a leading rainbow trout (about 1,000 MT annually) and yellow perch farm that recirculates and cleans 99.64 percent of its water. With years of success raising white fish under its belt, the company undertook coho salmon production earlier this year, using technology developed by TCFFI.

Norman McCowan, president and CEO at Bell, said he’s pleased with the early results for the project that was hatched four years ago.

“My general philosophy is that here in North America we have a USD 12 billion (EUR 8.8 billion) seafood trade deficit. It will take all kinds of technology to meet that demand,” he said. “It’s just one of the pieces but it is financially viable. There will soon be 9 billion people on this planet. It will take all of us working together to address the needs we’ll have in the future.”

Perhaps the most triumphant tale is Australis Aquaculture in Turners Falls, Mass., U.S., which has enjoyed a decade of steady production growth with barramundi, a sea bass species that is the most popular fish in Australia. Eighty percent of the fish produced in Massachusetts goes to the live market (Australis also operates a marine-based farm in Vietnam that earned the Best Choice ranking from Seafood Watch last month, a designation the indoor-raised fish earned in 2006).

Josh Goldman, managing director of Australis, says over his 25-year career that land-based aquaculture technology has gotten better and has become less costly and more predictable in its performance. Competing on price with cage-raised salmon, which the land-based product will ultimately have to do, is a more difficult ask.

“Clearly it’s earned a place as a key technology for juvenile fish across a wide range of species. It enables salmon farmers with their smolt production,” he said. “[In the next 10 years] I think we’ll see growth in the specialty sector, but I’m not sure we’ll see it, in its current form, become a dominant form of production for commodity product. It doesn’t address the kinds of questions that the salmon guys are wrestling with.”

Australis has explored additional indoor sites both near its current footprint and in other places that would provide geographic diversification, said Goldman, but the company ultimately opted to fulfill growth plans with its Vietnam marine-based farm. “We had created a market for a new product,” he said. “If we didn’t ensure a low cost of production we would be vulnerable to ceding that market position.”

Salamone of Wegmans hasn’t given up on the idea of fish farms positioned in close proximity to key markets. The 68-year-old veteran said he wishes he were 30 years younger so he could see the industry evolve to a point that may seem like a fantasy today.

“Ten years from now a company like Wegmans could raise its own fish on land somewhere,” he said. “That is the future for land-based aquaculture.”

Email SeafoodSource Senior Editor James Wright at [email protected]


Want seafood news sent to your inbox?

You may unsubscribe from our mailing list at any time. Diversified Communications | 121 Free Street, Portland, ME 04101 | +1 207-842-5500