Senior Rabobank analyst Gorjan Nikolik said the company predicts that only 10 percent of future recirculating aquaculture system (RAS) salmon projects will likely succeed.
“At best, maybe 10 percent will become reality,” Nikolik said. “But the question is where?”
Nikolik said that he has determined that there’s roughly 700,000 tons of salmon production in the works through RAS facilities, in various locations in the world. However, the difficulty of establishing a facility and the high cost of production will likely lead many of those projects to fail.
“It’s obviously not very easy to get these things up and running,” he said.
Historically, Nikolik told SeafoodSource, the salmon sector has faced volatility even without the added complications of RAS systems.
“It’s not to be pessimistic or anything, but on the one side you have historically not a very profitable history of the sector. There’s a lot of bankruptcies,” he said.
One of the big risks of salmon RAS is a high increase in production that leads to a price drop, which could evaporate any profits.
“If you are the one who creates a price drop, but you’re not among the lower end of the marginal cost, then you will also be the first one that goes out of the market,” he said.
The way to mitigate those risks, Nikolik said, is to develop a system in a location that is isolated from traditional salmon production
“The mitigation is to be in a location where you are the most isolated as possible from the coastal competition,” he said
China and Japan are both extremely far from salmon-producing areas, and are also countries that are increasingly seeking out more salmon.
“The growth of those intercontinental trade flows, the selling of product to China, to Japan, this really is the main growth of the last few years,” Nikolik said. “These major destination markets, particularly China and the U.S., they’re really supplied mostly by flying fresh salmon. This is where the comparative advantage of RAS is the strongest, so they could emerge in that region if you look at it from a trade perspective.”
Currently, salmon production through RAS is relatively untested, so as more systems begin to come online, the market’s reaction will be a key indication of how the future of the industry will work out.
“The next three or four years are critical. This is when quite a few of these projects emerge from the 1,000-ton level to the 5,000-[ton] or more,” Nikolik said. “[We'll] see what the cost is and the market acceptance and price point and even the competitive reaction from the salmon farms.”
