Backing a gem
How bank’s perspective on land based farming has evolved
NORWAY’S leading seafood banker said her thinking on land based farming has ‘evolved, despite decades of disasters’. DNB global head of seafood Anne Hvistendahl told delegates at the North Atlantic Seafood Forum in Bergen last month that full cycle land based farming will succeed sooner or later, and the bank’s attitude towards the sector had become more ‘nuanced’.
Quoting Bill Gates’s famous maxim, ‘don’t let yourself be lulled into inaction’, she said RAS technology had been honed in big smolt hatcheries, and a handful of industrial scale, full cycle projects, sited close to their end markets, were now being planned or developed, particularly in the US.
DNB has helped finance just one of these so far, Atlantic Sapphire, which is building a salmon RAS farm in Miami, Florida. DNB has been involved in both raising equity and providing loans.
DNB’s involvement- the only large debt financing of such initiatives so far, and arranged with the Danish Export Credit Agency (EFK) - was increased to $86 million in February, following equity rounds of NOK 600 million ($70 million) in 2017 and NOK 640 million ($74 million) in 2018.
DNB’s funding will be used to complete phase one of Atlantic Sapphire’s RAS facility in Florida, which is expected to produce nearly 10,000 tonnes a year to start with.
Hvistendahl said equity must be the key source of finance until the known challenges of the sector have been solved.
Atlantic Sapphire, which plans to produce 90,000 tonnes by 2026 in the US, also operates the world’s first commercial land based salmon farm, Langsand Laks, in Hvide Sande, Denmark.
Set up in 2011, this plant has undergone several production cycles and recently achieved its target biomass of 870 tonnes (real live
weight), which will produce an annual yield of 2,900 tonnes.
Hvistendahl said there were now several small producers in operation globally, including Kuterra, Jurassic Salmon, and Swiss Lachs; and a handful of industrial scale ventures such as Atlantic Sapphire, Nordic Aquafarms, and Whole Oceans, which are all establishing or planning to establish farms in the US. On top of these, there are many Norwegian projects in the pipeline.
She told Fish Farmer last year that DNB gets ‘a lot of inquiries from companies all around the world who want us to take a look at their land based projects’.
‘DNB Markets made a survey two years ago that summed up all the planned land based farming in general and they totalled 220,000 tonnes. Now we think this figure is around 350,000 tonnes. But very few are built and very few have financing from banks.’ Many of these projects will struggle to actually be constructed.
It was important for salmon farmers to be cost competitive, and also at lower prices than the current ones, she said.
Prices for land based salmon would be higher while this was a niche
product, but the premium would disappear if this form of production became mass market.
While land based farms might incur higher capex and greater depreciation, the licences were free. And for producers based close to their markets, such as in North America, there were potential savings of NOK/kg 15 in air freight.
Hvistendahl, discussing the risks banks take, said: ‘We are cautious, but handle all requests seriously.’
In DNB’s view, investors in RAS should be prepared for challenges and setbacks while the land based sector is immature, and while ‘challenges and surprises are more normal than financial success’.
She listed some of the challenges in land based farming as:
• RAS are large complex process facilities with high requirements for continuity and stable environmental conditions;
• Must have top level cross disciplinary competence in farming, biology, water chemistry, technology, electricity, and so on;
• Combining complex process and cost efficient operations;
• High salinity gives H2S risk;
• Freshwater increases sexual maturity;
• Growth problems;
• Soil taste;
• Use of land, water usage, handling of waste, increased CO2 emissions and energy use;
• New ways of production have historically created new disease challenges;
• Possible higher production costs;
• Access to capital.
But Hvistendahl also spelt out many of the benefits:
• Strong market, land based volumes can be absorbed without major impact on prices.
• Satisfies the demand pull when traditional production technology struggles due to biological challenges;
• Possible to create niche products at higher prices;
• Air transport cost advantage;
• Potentially important way of farming salmon in the long run;
• Environmentally friendly;
• More controlled environment – may leverage digital technology better;
• Not subject to economic rent tax.
“We are cautious but handle all seriously” requests