Plans for two million tonnes of land-based salmon will bring radical changes to the entire industry.
10-15 years ago, recirculating aquaculture systems (RAS) were a Danish industry. A small number of Danish companies traveled the world building facilities. Mostly smolt sites, but eventually also some smaller harvest-sized fish farms. What the fish farms had in common is that they did not make money. The fish had sky-high fixed costs, as total production costs were distributed in quite a small amount of kilos.
At the time, the salmon price was between EUR 3 and EUR 3.5 per kilo. Land-based production costs were much higher. Sea cage farmed salmon could be produced considerably cheaper. RAS was not competitive.
As a function of strict lice requirements, but also increased feed costs, in recent years it has become significantly more expensive to farm salmon in the sea. Break-even is now over EUR 4 per kilo. At the same time, the supply growth of salmon has declined, due to political bottlenecks related to the salmon’s environmental footprint. This, in turn, has been the main reason for a regime of historically high salmon prices from 2014 onwards.
Pioneer company Atlantic Sapphire was the first to see the opportunities in large-scale land-based salmon production. They first bought into the Danish fish farming company Langsand Laks, so that the site could act as a learning outpost as well as a pilot facility. By then, the plans had long since been put down for a significantly larger RAS facility, with lower fixed costs per kilo, in an overseas market. The latter was important, as salmon prices there will be higher as such a market is mostly supplied by air-freighted fish.
Higher prices and lower fixed costs per kilogram. It was a gamechanger.
Atlantic Sapphire was the first. But many others have seen these opportunities in the last couple of years. RAS salmon is likely to be competitive with sea-farmed salmon, at least in certain markets.
Two million tonnes
It has provided a contracting boom. SalmonBusiness has previously reported that there are plans for onshore RAS facilities with a total theoretical production capacity of over two million tonnes of salmon. In the past year alone, projects have been launched for over a million tonnes.
This will naturally require extensive new investments. If CAPEX investments are estimated at EUR 10 per kilo of salmon, this will be a matter of EUR 20 billion.
This method of production is significantly more capital intensive than sea-cage farming. We are also not talking about maintenance investments, but new multibillion-dollar investments.
So the question is: Who will build this?
There are currently only 4-5 companies that have the capacity and knowledge to build such facilities. Money is not a significant bottleneck. Knowledge and infrastructure are. As long as it lasts.
It is not a bold prediction to say that this knowledge will instantly spread to new players. Some key people will break out and form new companies. Others will be acquired. The capital will rise and go on.
International capital has long since been on the pitch. Everything is much easier then. The money will attract expertise and form new suppliers.
The entire value chain
This is currently a limited market but one which will increase dramatically in the years to come. And then, of course, we’re not just talking about manufacturers of turnkey RAS facilities.
The entire value chain for RAS must be counted for. Suppliers in sludge treatment, biogas and water purification. Manufacturers of pipes, tanks and pumps. They should all be preparing themselves for juicy market growth over the next decade. Yes, even electricians, traditional construction companies, suppliers of steel and concrete, will get more work.
Here we are talking about big ripple effects.
Changes are coming. Much has already been taken down in the order books. Even more is coming in the pipeline. The race is laid out. And these changes will change the structure of the salmon farming supplier industry as we know it today.