The seafood industry is the most diverse protein-producing industry. It is a unique sector as approximately 50 per cent of the supply for human consumption comes from wild catch, the world’s only commercially significant form of food production which relies on wild resources.
The other 50 per cent is produced by aquaculture, a young and dynamic industry that represents the fastest growing protein-producing system in the last three decades and also in the foreseeable future. Among these two production systems there are many species- based markets across the globe, all with highly uncorrelated dynamics. All share the same strong demand function, as developing countries are undergoing a dietary shift towards a higher level of protein consumption while developed countries are focusing on food with health benefits found in seafood, such as Omega 3 and low saturated fat content.
However, apart from the demand function, the subsectors in the seafood industry are highly diverse. This diversity has created a sector which is fragmented and challenging for investors. But it is precisely this fragmentation and diversity that is creating the opportunity for leading producers to take a number of strategic directions: they could become specialised in a single subsector and diversify regionally or globally, as Marine Harvest, the world’s leading salmon farmer has done, or they could pursue a diversified business model strategy based on the many species of the seafood industry.
In both cases, profitability and sales growth can benefit from the demand function of the seafood industry, technological improvements and potential synergy from acquisitions.
Rabobank is of the opinion that the global seafood industry is currently at the very beginning of cross-species, cross-geography and cross-value chain consolidation. We believe that the integration of wild catch, aquaculture and seafood processing into a single diversified entity is only just starting to gain ground as a business model concept.
Each one of the three pillars has a role to play. A wild-catch producer in a well-regulated and consolidated fishery will be the key cash generator, and with its strong asset base (fishing quotas and vessels), can function as a guarantor for the diversified group. The aquaculture part will benefit from the sector’s growth dynamic and will be the key recipient of investment funds.
Finally, the processing unit will benefit from the upstream synergy in logistics, distribution, marketing and branding, which all seafood products share, regardless of their wild-catch or aquaculture origins. The processing unit will also act to mitigate the volatile spot prices adding further financial stability to the group.
The experience of companies such as Pescanova and Sanford testify to the consistent and peer-leading financial performance of the diversified seafood producer model. More recently, Chilean companies like Camanachaca and the recently formed Blumar Seafoods, as well as US- based Icicle Seafoods have started to pursue this diversified strategy.
In our opinion, this business model is resilient to macroeconomic and commodity cycles while it also capitalises on the growth potential of the seafood industry. By no means will this be the only successful business model in the seafood sector. Species specialists, one-stop-shop processors and other business models will also perform well. However, it is the diversified business model which utilises the diversity of the seafood industry to create a type of business enterprise unique to this sector.
The profile of this industry is growing among financial investors, who will act as catalysts to enable the expected consolidation as well as help to finance the rapid technology developments and expansion plans of the aquaculture sector. The diversified business model could certainly be attractive for PE investors, which until now have refrained from investing in aquaculture because of its cyclicality, biological assets and frequent business environment changes.
Finally, it is also possible that the seafood industry will gradually attract the attention of the more consolidated and larger animal protein industry which could be a key investor in the mid to long term and is likely to target some of the high- growth aquaculture sectors, such as salmon, shrimp or tilapia.
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