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Asian taste for salmon spurs land-based farms, exciting investors

Companies in Japan and Singapore seek profit in environmentally friendly method

Denmark-based salmon farmer Danish Salmon, owned by Japanese trading house Marubeni and fisheries company Nippon Suisan, annually produces 1,000 tons of Atlantic salmon. (Photo courtesy of Marubeni)

TOKYO -- Land-based salmon farming is increasing across the globe as demand grows for raw servings of the fish, mainly in Asia. And the production method is also attracting money from Japanese trading houses, companies and regional investment funds on a rising tide of environmental concerns over conventional sea-based aquaculture.

Sea farming is facing difficulty in boosting output due to a shortage of suitable locations and regional environmental regulations, including Europe. In its place, land-based farming, which places less burden on the environment, has attracted attention in recent years from trading houses and investment funds seeking business opportunities.

According to research by the U.N. Food and Agriculture Organization and Japan's Ministry of Agriculture, Forestry and Fisheries, global output of farmed salmon and trout grew about 50% over the previous decade to 3.48 million tons in 2017. Those farmed fish now represent 80% of all salmon and trout consumed in the world.

Transaction prices for salmon remain high. According to the FAO, the market size of the farmed varieties totals about 2.4 trillion yen ($22.4 billion). In recent years, an increasing taste for raw salmon in Asia, including China, has led the demand.

Currently, sea-based farms represent the majority in salmon cultivation. There are no clear-cut statistics concerning land-based operations, which have only started to grow in recent years. But an industry insider said their output may reach up to 500,000 tons over the next decade, significantly increasing their presence.

Driving growth in land-based farming are stricter marine environmental regulations spurred by contamination resulting from fish feed and waste from sea-based farms. For example, locations and output of sea-based farming are restricted in the key production regions of Norway and Chile, for the purpose of marine resource management. But such restrictions do not apply to land-based farms.

It all means that businesses are racing to gain a bigger share of the growing pie. In April, general trader Marubeni and fisheries company Nippon Suisan, better known as Nissui, jointly bought Denmark-based salmon farmer Danish Salmon after a bidding war with multiple European countries.

"We had been looking for an opportunity to take on the salmon farming business for many years," said Kazunari Nakamura, general manager of Marubeni's seafood department.

DS is a major land-based farmer that annually produces 1,000 tons of Atlantic salmon, the main type consumed in Europe. Marubeni aims to boost output to 2,700 tons a year in two to three years and eventually to 5,500 tons by introducing new equipment. Marubeni also plans to operate salmon farms in Asia and the Middle East.

DS's strength lies in its land-based farming technology known as a closed recirculating aquaculture system. Compared to partial recirculating systems that use seawater or underground water, DS's closed system has virtually no need to replace water and maintains a steady water temperature, resulting in lower electricity bills. And by not using seawater, it helps operators to prevent fish infection.

"The system makes it easier to manage water quality, and reduces environmental load from feed and fish waste contamination, compared to sea-based systems," said a Marubeni spokesperson.

Land-based fish farming is also drawing attention from the standpoint of U.N. Sustainable Development Goals. Businesses are working to align themselves with the SDGs as investors and consumers are increasingly watchful of how they deal with the objectives. Outside Japan, fish from land-based systems are more expensive compared to those from sea-based farms and are sold under premium brands touting their environmental benefits. Such a trend is another factor that prompted Marubeni to go into land-based farming.

Some investment funds are also showing interest in land-based farming. Pure Salmon, a portfolio company of a Singaporean investment fund, is aiming to boost its global output to 260,000 tons in the second half of this decade. It is an ambitious goal that represents over 7% of current total aquaculture-based salmon output.

The biggest issue for land-based salmon farmers is high costs. Tetsuro Sogo, COO of FRD Japan, which operates land-based farms and is based in the city of Saitama north of Tokyo, said those systems require more initial investment and fixed costs, such as power bills, compared to sea-based counterparts. A land-based farm needs to have an annual scale of 10,000 tons in a single location to be able to compete with sea-based rivals, according to sources.

Salmon is regarded as the mainstay product for land-based fish farming due to high global demand for it as well as its cultivation efficiency as a result of requiring less feed. The technology is expanding its scope of application to include other fish, such as hirame, or flounder, and torafugu, or puffer. There is a possibility it may be used to farm other types of fish as well if costs can be further lowered.

In sea-based salmon farming, Japanese players have a strong presence. Mitsubishi Corp. owns Norway's Cermaq Group, which boasts the world's third-largest output at 210,000 tons, while Mitsui & Co. has a stake in a Chilean sea-based farmer with output totaling 100,000 tons.

General traders have rich know-how in production and distribution acquired through shrimp farming, and also possess abundant investment capacity.

Land-based farming is starting to grow in Japan, too. Many of Japan's farmers were small operations that sell salmon as their respective regional specialties. But large projects got going in recent years and some operators have started shipping their salmon to locations across the country. Domestic demand is expected to increase for salmon grown in Japan amid expected stable supply.

Soul of Japan, the Japanese subsidiary of Pure Salmon, plans to build an aquaculture plant using the closed recirculating system in the western prefecture of Mie. It aims for an annual shipment volume of 10,000 tons by 2023. Itochu plans to sell the output. And under a previous initiative, Itochu will by the end of this year start selling salmon grown at a land-based farm in Poland.

Mitsui bought FRD Japan and in 2019 started a trial shipment of salmon farmed at a closed recirculation farm. It currently sells salmon trout, popular in Japan and characterized by its bright red-colored meat, at supermarkets.

"Ninety percent of salmon to be eaten raw is imported," FRD's Sogo said. "But domestically farmed salmon has the strong trust of consumers who seek safety."

FRD Japan plans to build a new facility in Chiba Prefecture as early as 2021, aiming for an initial annual output target of 1,500 tons.

Companies in other industries are also entering the market. NEC Networks & System Integration in 2019 set up a land-based operation jointly with a farming company. Plant construction is underway in Yamanashi Prefecture, west of Tokyo, with a goal to start shipping in 2022. The company utilizes information technology, including artificial intelligence, for land-based farming. It is working to reduce costs through stable water quality management and efficient production process design.

"Sea- and land-based farming each has both strengths and weaknesses and they can complement each other," said Tadahide Kurokawa, a farming expert.

"In Japan, the season in which you can farm salmon is short," added Kurokawa, the chief of the Japan Fisheries Research and Education Agency's fisheries research facility on the northern island of Hokkaido. "That's why there are high hopes for land-based farming, which can maintain production throughout the year."

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