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Economy

Full bluefin tuna farm shares rise as fish stocks dwindle

Tight restrictions and big appetites promise tidy profits if farms can iron out kinks

Feed One and Kyokuyo plan to ship their first fully farmed bluefin tuna in November, grown in Japanese tuna farms like this one in Ehime Prefecture.

TOKYO -- Full farming of bluefin tuna, which starts with getting the fish to spawn in a completely artificial environment, is finally showing signs of becoming profitable.

Investors are responding accordingly, pushing up the stocks of companies that develop technologies for artificially hatching eggs and fattening fingerlings to maturity. These companies include Feed One, a major feed supplier, and seafood companies Kyokuyo and Nippon Suisan Kaisha, or Nissui.

Demand for fully farmed tuna will doubtless grow in the coming years as stocks of wild tuna are dwindling fast. Before really taking off, however, a number of technical hurdles need to be addressed.

The first step in full bluefin tuna aquaculture is the most challenging -- hatching fertilized eggs from fish born through artificial insemination. This is far more difficult than growing captured fries to adulthood, but in 2002, Kindai University managed to accomplish this.

Cautious openings

Maruha Nichiro, a Tokyo-based seafood supplier, became the first company to commercialize full tuna farming in 2015. Since then, a handful of companies have entered the business.

In October 2014, feed suppliers Kyodo Shiryo and Nippon Formula Feed Manufacturing -- an affiliate of trading giant Mitsui & Co -- merged to create Feed One. The new company has since partnered with Kyokuyo to start farming and is poised to ship its first batch of fully farmed bluefin in November.

Meanwhile, Nissui plans to make its first shipment this winter.

Japanese players are leading this uncrowded field, and growing expectations for full tuna farming are lifting the stocks of these companies.

Feed One has soared 94% from the end of 2016 on Wednesday. The company is expected to benefit also from rising demand for its tuna feed. Kyokuyo shares have spiked 34%, while Maruha Nichiro's surged 10%, outpacing the Nikkei Stock Average's 9% climb.

Feeding demand

Tuna consumption is rising globally, especially in emerging countries, accelerating the decline in Pacific bluefin populations. Their numbers have plummeted to one-tenth their peak due mainly to overfishing, forcing the international community to enact tighter restrictions on tuna fishing. Restrictions are also hurting conventional tuna farming, which uses fingerlings caught at sea.

Imports accounted for half of the 46,000 tons of bluefin supplied to Japanese consumers in 2015, with farmed tuna making up an additional 30% or so, according to the country's Fisheries Agency.

Maruha Nichiro is already supplying an estimated 300-400 tons of fully farmed bluefin tuna annually. Feed One and Kyokuyo are expecting to ship 60 tons in 2017 and 200 tons in 2018.

Fully farmed tuna still accounts for only a fraction of the domestic market for the farm-raised version of the fish. But new methods of farming have the potential to generate significant sources of bluefin for Japanese consumers.

Growth to profitability

The main challenge is quickly making businesses profitable. It usually takes about three years for artificially hatched fries to grow to maturity and be sent to market.

The business is also hindered by very low profit efficiency, with less than 1% of the fish actually reaching maturity.

None of the companies have disclosed their plans or earnings forecasts. An analyst at a major Japanese brokerage predicts it will take three to five years to nurture their businesses into stable profitability.

Maruha Nichiro is targeting 36.5 billion yen ($323 million) in sales in its fisheries business in the year through March 2018, with an operating profit of 1.9 billion yen. But its full bluefin tuna farming operation seems to be generating puny profits. At the current price of around 3 million yen per ton, shipping 400 tons generates little more than 1 billion yen in sales.

To boost profitability, the companies must sharply increase their production, a key factor of which is improving fish survival rates. Feed One has launched new tuna feed designed to raise the rate among farmed fingerlings.

Also important is boosting exports to growing markets. Maruha Nichiro plans to start exporting fully farmed bluefin as early as the year ending March 2019.

"Overseas farming operations would further enhance the competitiveness of farmed tuna," said Kenji Araki, senior analyst at Tokai Tokyo Research Institute.

The current rally of tuna farming issues may be followed by long-term growth of stocks if the companies can raise profitability.

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