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Will the land-based aquaculture bubble burst?

Without standardization, only a handful of companies stand a chance while many others are doomed to fail.

Hate it or love it, everyone is paying close attention to every development in land-based aquaculture.

Forbes recently picked up the trend as a key innovation for sustainable aquaculture, and Oslo-listed land-based salmon farmer Atlantic Sapphire is now worth NOK 7 billion ($802.5 million/€714 million).

But land-based aquaculture experts at the IntraFish Seafood Investor Forum last month warned that many land-based projects tank -- and many of those currently underway won't make it.

“There is going to be a lot of enthusiasts," said Erik Heim, president at Nordic Aquafarms.

“They lack either biological or commercial expertise, they underestimate the complexity of biotechnology, of all the other requirements coming together into one project and of the financing process to get things off the ground.”

Johan Andreassen, CEO of Atlantic Sapphire, recently urged investors to be “realistic on land-based,” and Finance Director Karl Oystein Oyehaug agreed at the Investor Forum that “many projects will not succeed.”

The expectations built around the industry seem to be outpacing reality, and the NOK 7 billion market cap of Atlantic Sapphire is particularly eyebrow raising considering its current production: 900 metric tons of salmon in Denmark a year, and zero in Miami.

Though major conventional salmon farmers are no doubt closely watching the sector, with their current margins there is no urgency to take the risk.

“Right now, the salmon farming industry is going really well, so the question is: what incentives do traditional farmers have to make the switch at this time?” said Heim.

If even some of the projections bear out, all salmon farmers will be impacted by land-based production, with its promise of cutting transport times and costs, claiming strong sustainability achievements, and being exempt from much-feared import tariffs in countries such as the United States.

So why not jump ahead of the game? Uncertainties are mostly related to the economical viability of these projects, and not so much about the ability to build technologies that work. Only when the right ones become a reality will we start to see the big groups move in.

Contrary to the arguments that sophistication and expertise will bring costs down, Kjetil Haga, co-founder and partner at Broodstock Capital Partners, said that the investment in land-based farms will never be inexpensive.

Individual companies will be more likely focused on overcoming their own hurdles rather than contributing to industry-wide standardization that we are used to seeing in traditional salmon farming, which will inevitably drag on development.

“Looking at the software, the pumps, the filters that we use, and all the resources that we put into development, I know farms will be better, but I don’t think they'll be cheaper,” he said.

Land-based casualties abound in the past two decades, and that will not stop, as evidenced by recent troubles in the land-based and recirculating aquaculture system (RAS) sector, including Pentair's Urban Organics division and Maine land-based producer Acadia Harvest.

So while the industry is exciting, it is clear that companies need to think twice before diving too deep into land-based systems.

Comments? Send them to lola.navarro@intrafish.com.

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