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FARMED SALMON - THE FUNDAMENTALS
It's been nearly a month since the news of Australian Ethical's divestment from Tassal, a Tasmanian-based salmon producer, was announced. Australia's largest ethically-conscious fund manager dropped their shares, nearly AUD $10m worth, and for the last few weeks both companies have seen regular slumps in their share prices. We wanted to find out what prompted Aus. Ethical's controversial yet influential decision and what might we see going forward.
Looking back on the charts, since the pride of Australian aquaculture listed in 2003, Tassal has gone from strength to strength with their stock in an overall uptrend. Over the years, the company earned an environmentally-responsible reputation and were considered an industry leader in sustainable aquaculture. So until recently, Tassal sounded like the ideal investment - why then have Aus. Ethical relinquished nearly 2% of issued capital? This is where we dig into the nitty-gritty.
While aquaculture is widely considered the solution to feeding the future, a growing challenge is satisfying the hungry mouths of your livestock while making sure the feed itself is sustainably sourced. Aquaculture, particularly salmon farming, has been in the spotlight for having a large environmental footprint thanks to the carnivorous diets of their stock. The traditional feed for farmed salmon comes from wild-caught fish, mostly anchovies, and it typically takes 1.4kg of small fish to make 1kg of salmon. This disproportion of input versus output is widely acknowledged as unsustainable. As the debate goes, our global fish catches are levelling off or plummeting. We are essentially maxing out how much fish we can extract from the ocean, yet throwing a sizable proportion of it into salmon - a luxury item.
Salmon farming has however seen dramatic improvements to feed efficiency. Tassal have made moves to reduce the amount of wild-caught fish in their feed, replacing much of the salmon diet with plant-based alternatives.
Yet despite all this, Aus. Ethical stated concerns over the company's operations in various farms around the state, as well as the sustainability of their salmon feed. While the investment giant is known to be on the stricter end of the ethical investing spectrum, in the lead up to the divestment, there was additional mounting pressure from Environment Tasmania and the public. Once the announcement was made at the end of March, shareholders responded; the price of Australian Ethical fell 93% in one day.
When it comes to sustainability in aquaculture, there is certainly cause for concern. However, the amount of fish meal used in Tassal's salmon production is much lower than seen in Norwegian or Scottish salmon farming, for example, and has been further improving in recent years.
With all this back and forth, where does one invest? Is putting your eggs in aquaculture ill-fated, or was Australian Ethical too hasty? You may have already made up your mind, but before you give your broker a call, let us throw one last spanner into the works.
As the demand for farmed fish grows, there continue to be some very promising developments in the area of fish feed. From algae to insects, there is big money and big incentives in developing sustainable salmon diets that can still satisfy nutritional needs. While perhaps not the most glamorous topic, when it comes to the fundamentals, it's the industry to keep an eye on.
First Published: 20 April 2017 - Copyright © Electronic Information Solutions Pty Ltd 1990 - . All Rights Reserved.
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