Report warns that investors must put their clout behind emerging innovative technological solutions, such as offshore closed cage systems and onshore recirculating aquaculture solutions, for the industry increase production supply through 2030.
The Atlantic salmon farming industry is approaching the practical physical limit permitted by existing farming methods, placing a highly-concentrated pool of investors and industry players at "considerable financial risk", think tank Planet Tracker has warned today.
A host of environmental factors, including a build-up of effluent, warming seas, and increased incidence of disease pose a "significant" threat to the industry, the report notes, yet these environmental challenges are not priced into existing company and market valuations.
Planet Tracker argues that substantial investment in emerging sustainable farming technologies is required to curb the environmental risks faced by the $18bn salmon farming industry, which is approaching its "ecological brink" after a decade of dramatic growth.
The report, titled dubbed Loch-ed Profits, warns production forecasts for farmed salmon through to 2025 will be between six to eight per cent lower than estimated if coastal ecological health continues to worsen and current trends continue.
The estimated drop in production, which is equivalent to $4.1bn of revenue, is likely to be exacerbated by the sharp slump in demand for salmon seen during the Covid-19 crisis. The pandemic has spurred a 14 per cent decline in spot salmon prices in the first quarter of 2020, the report notes.
Atlantic salmon, the focus of Planet Tracker's report, is the second most commonly farmed aquatic species and accounts for more than 90 per cent of total farmed salmon. The industry has been steadily growing for more than a decade, but coastal open net pen farming, which accounts for more than 95 per cent of all Atlantic salmon production, is constrained by a number of factors, including a limit on the availability of new sites and increasing environmental threats.
Coastal open net pen farming has been associated with significant environmental concerns, given that it relies on natural processes to remove waste and provide oxygen. The practice has also been accused of dispersing chemicals, parasites, and disease from farming operations into the surrounding natural environment.
In the report's foreword, Planet Tracker founder Mark Campanade stressed the farmed salmon industry had reached "a critical point" in its development.
"While positive mid-term demand and higher prices may give the impression of a stable and profitable sector, the salmon farming industry will have to overcome some significant barriers in the medium term to transition from current coastal farms to innovative technological solutions, such as offshore farming, if it is to continue to increase production supply through to 2030," he said.
Planet Tracker argues that the industry should embrace off-shore closed cage systems - floating, enclosed farms sunk at depths where sea lice cannot survive in the open sea - and onshore recirculating aquaculture systems. Both technologies, however, are more expensive that existing farming methods and will require "substantial" investment to be rolled out at scale, it said.
As such, Campanade emphasised how the report "seeks to demonstrate to investors that investing now in making the industry more sustainable will stabilise mid-term operating cost margins, enabling profitable growth to continue whilst mitigating environmental risks, as the industry is looking to expand beyond coastal operations to install more onshore and offshore-farming capacity".
A relatively small number of private and institutional investors are exposed to the financial and environmental constraints highlighted by Planet Tracker's report, given that salmon production is a highly concentrated industry. Just four countries - Canada, the UK, Norway, and Chile - accounted for more than 90 per cent of global salmon production in 2017. And just 10 publicly traded salmon companies with a combined market capitalisation of $28bn produce more than 50 per cent of all farmed salmon.
In today's report, Planet Tracker lays out a series of recommendations that it claims could allow farmed salmon companies to reduce production losses over the decade to come. It said that companies should report on compliance with environmental regulations and industry guidelines; maintain an effective and auditable Environmental and Social Management system that explains salmon losses; deploy remote electronic monitoring systems with live data feeds accessible to investors; increase research and development spending on environment risk mitigation, such as disease and sea lice control measures; and strengthen control of third-party audited transparency and traceability for all feed sources.
A relatively small pool of investors also hold considerable sway in pushing the salmon industry towards a more sustainable and profitable future, the report notes. Just 20 investors account for more than $15bn in holdings in the sector.
As such, Planet Tracker recommends that investors should manage their exposure to risk by demanding a raft of improved reporting, measurement and assessment measures from companies, while also advocating for marine spatial planning to maximise sustainable famed production and mitigate environmental risks.
Campanale's work at the Carbon Tracker think tank has gained considerable traction amongst top investors by highlighting how many carbon intensive companies are over-valued and exposed to considerable climate-related risks. Today's report suggests that the aquaculture sector could face very similar challenges if operators and investors fail to tackle escalating environmental risks.
