Fish are getting more expensive, but they do not all move at the same speed

Fish are getting more expensive, but they do not all move at the same speed

Aug 10th 2013 |From the print edition

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IT IS a good time to be a fisherman. The global fish-price index of the UN’s Food and Agricultural Organisation (FAO) hit a record high in May. Changing consumer diets, particularly in China, explain much of the sustained upward movement. High oil prices, which increase the cost of fishing and transportation, also add to the price of putting fish on the table. Not all fish are created equal, however. There are two types of fish production: “capture” (or wild) and “aquaculture” (or farmed). And they seem to be on different trajectories. Fish such as tuna, the majority of which is caught wild, saw much bigger price increases than salmon, which are easier to farm. Overall, the FAO’s price index for wild fish nearly doubled between 1990 and 2012, whereas the one for farmed fish rose by only a fifth. What explains this big difference?The amount of wild fish captured globally has barely changed in the past two decades. The ceiling, of about 90m tonnes a year, seems to have been reached at the end of the 1980s. Overfishing is one reason, as is the limited room for productivity growth, particularly if consumers want high quality.

Patrice Guillotreau of the University of Nantes tells the story of a fleet in France that decided to trawl, rather than line-catch, its tuna. It brought more back to shore, but the fish were damaged. It could not be sold as high-value fillets and was only good for canning. The old ways of catching fish are still best if you want the highest profits, says Mr Guillotreau.

In contrast, the farmed-fish industry continues to make productivity improvements. Fish farms have found crafty ways to use lower quantities of fishmeal as feed. In the early days of aquaculture, it could take up to ten pounds of wild fish to produce one pound of salmon. Now the number is down to five. That may still be an inefficient use of protein, but the ratio is set to improve further. Fish farms have also become more energy-efficient, meaning that they are less affected by higher energy prices. And they have learned how to handle diseases better, reducing the quantity of fish that ends up being unsellable.

As a result of all these improvements, the global production of farmed fish, measured in tonnes, now exceeds the production of beef (see chart). Output is likely to continue growing: the FAO estimates that by 2020 it will reach six times its 1990 level.

This growth will further shake up the markets for fish. The farmed kind is expected to dominate the market for medium-value produce. Suppliers of wild fish, for their part, must slither into niche markets. At the low-value end wild sardine is a crucial input for farmed fish and is in abundant supply. More than a third of the total marine catch in 2010 was used for the production of fishmeal and fish oil.

But more money may be made serving the captains of industry rather than industry itself. Sapmer, a French fishing company, recently discontinued its canned-tuna production, instead concentrating on catching tuna for sushi and sashimi for the top end of the market.

Frank Asche of the University of Stavanger, who helped to devise the FAO fish-price index, sees parallels with the divergence between farmed meat and wild game. As the supply of wild fish declines relative to farmed fish, it will become a luxury commodity, he explains. “In 20 years’ time people will think of wild fish like we now think of venison.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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