Adam Taylor founded FirstWave Group in 2011 with the goal of becoming the world’s lowest cost producer of sustainable animal protein. The FirstWave team has built one of the world’s largest tilapia producers, with fish farms in Zambia and Uganda, an aquafeed factory in Zambia and distribution across most of Southern and Eastern Africa.
What do you expect the main changes to be in the tilapia industry over the next five to ten years?
At the farm-level I think there is potential for significant improvement in production efficiencies as a result of advances in genetics and nutrition. With respect to the industry more broadly, I expect we will see consolidation, driven by some companies capitalising on those technological advances, as well as financial strategies pursuing further economies of scale. From a market perspective, I think we’ll see a shift towards local emerging market sales in search of higher margin.
Looking at nutrition, what do you see as the potential changes there?
Our understanding of tilapia macronutrient requirements is reasonably advanced, although complicated by the widely varying production environments. This means there is significant scope for optimisation at the individual farm level. A farm with fast growing fish in a warmer water body is going to require a low energy to protein ratio and vice-versa. Those two farms could be in the same country, in the same water body, buying the same commercial feed which is not optimal for either. Therefore, farms with the resources to perform production trials to develop custom feeds will have a significant advantage.
More importantly, however, is our understanding of micronutrients, nutraceuticals and the microbiome. There are hundreds of commercially available feed additives that have been scientifically trialled and have demonstrated positive effects in fish and other animals. There are all kinds of biotics, enzymes, organic acids, amino acids, biosurfactants, stabilisers, antioxidants, minerals and vitamins. Many of these individually have very legitimate positive impact on tilapia growth and/or health, albeit not often tested beyond 50 grams in lab-scale trials. However, these additives are expensive and a company’s ultimate goal is generally to reduce costs. This is where the issue arises: the mechanisms of action and interactive effects between additives are not generally well-known.
Looking at the status today, most tilapia companies want the false economy of the cheapest feed with basic micronutrients added, some are willing to pay for a more advanced but still generic “warm water health pack” and those farms at the cutting-edge are using, at best, an educated guess as to what combination of additives to use. This leaves significant opportunity for leading fish farms or feed manufacturers to conduct applied research to determine what specific combinations and dosages of these additives are most cost-effective for each stage of their particular method of production and environment.
What about genetics? Breeding programmes have been around for decades – why do you think these are of particular relevance now?
There are two reasons: the cost of genetic sequencing has reduced dramatically and there is now a small group of leading tilapia companies around the world that have the technical and financial resources to apply the technology.
Until very recently, tilapia breeding programmes have been traditional, such as the well-known GIFT strain which most commercial strains are based on. Traditional breeding programmes do work but they work slowly, indirectly and up to a certain limit. For example, with 1,000 fish you might pick the biggest 100 to breed for your next generation without knowing that there is some unobservable genetic factor that will actually limit them down the line, or that they were the biggest because the farmer accidentally fed them more. With genetic sequencing we can now go directly to the “source” to quickly identify and quantify the benefit of exact genes. It’s like navigating with GPS instead of a sextant.
The cost of sequencing hardware, computer hardware and analytics software has decreased tremendously in just the last 5-10 years. Advanced genomic-based breeding programmes that would have cost millions, if not tens of millions, of dollars in 2010 can now be done for a few hundred thousand dollars. As recently as 2008, the time of the financial crisis, it cost more than $10 million to sequence a human genome
– today you can do that for a few hundred dollars. Using Nvidia Parabricks the data can be processed in just 45 minutes. Moreover, for industrial applications, once you know what genetic factors you’re looking for you can now use fast PCR-type sequencing, such as KASP, with a low-density panel and make a really insightful breeding decision for an individual animal for about the cost of a pizza. Twenty years ago that would have been science fiction. Sequencing costs aside, as the technology has become mainstream the support ecosystem is now available, for example qualified technicians and affordable or open-source analytical software.
Commercially, how significant do you think advances in genetic analysis will be to the industry?
Poultry provides a good case study. Compared to the 1950s chickens now grow four times faster and use half the feed. That’s an incredible improvement. These gains came primarily from traditional breeding programmes, as well as health and nutrition research. Similar results have been seen for milk production and other meats. However, the aquaculture industry has only started to scratch the surface, certainly in terms of applied research outside of academia. Keep in mind that the aquaculture industry was very small just 30 years ago. That means there is a significant amount of genetic potential waiting to be realised. The reason this is so commercially significant is that tilapia can now catch up to those poultry-type gains, but at record speed – due to the modern genetic tools available. With the right resources you could see 50 years of progress in 10 years – enough to disrupt any industry. I think that the companies that get ahead of this curve now, that innovate to decrease their cost of production, will be tomorrow’s leaders.
As with terrestrial animals, high performance strains of fish are available from specialist breeding companies with advanced genetics programmes. Could any farm not simply buy these better performing strains?
You could but I don’t think it’s effective. Unlike terrestrial animals, and poultry in particular, the empirical evidence is that “tilapia genetics don’t travel”. In other words, there is a high genotype-environment interaction. Broiler production around the world takes place in highly controlled enclosed environments: 35 days to 2.2kg, the same nutrition, lighting, medicines etc. A broiler chicken at a good facility in Indonesia lives essentially the same life as a broiler chicken in Scotland or Kansas. Tilapia production on the other hand is an open system and extremely varied: we have pond production and lake cage production, eutrophic lakes and oligotrophic lakes, hotter and colder water bodies, different pathogens etc. There is no standardised method or environment of tilapia production. What that means is that breeding programme outcomes that give a great result in one environment can flop in another. Often the growth rate benefits will mostly transfer but robustness will not. In the end the farmer is left with a lot of fish that grew quickly before they died.
A final important reason is that companies need breeding goals that align with their commercial strategy and production methods. One farm may want to grow fish to 1kg with maximum fillet yield using a high specification feed, whereas another may want to grow fish to 350g using lower specification feed. While there is some overlap, these farms would be best served by different breeding programmes which produce site-specific, appropriate genetic lines.
What would be the environmental impact of both these genetic and nutritional advances?
The impact would be obviously very positive. But the impact is even more positive than first meets the eye because any feed not converted to meat is waste – the physical matter did not vanish – and it’s the waste you are cutting. If hypothetically you used 25 percent less feed, then the environmental impact of production might be cut by 50 percent or more.
This comes down to using the correct ingredients (suitable macronutrient specifications), using more digestible nutrients (R&D and quality control), improving the fish’s ability to digest everything (genetics, enzymes and processing), and making sure the fish consumes the feed (pellet binders etc and feeding techniques). Taking phosphorous emissions, for example, might mean targeting the correct amount of phosphorous intake for the fish, using a more digestible phosphorous source, adding the enzyme phytase to increase digestibility of the phosphorous source and breeding fish that are better at digesting or using phosphorous. Depending on your starting point those could together cut phosphorous discharge in half and double the carrying capacity of a production site.
You mentioned that these changes and other factors should lead to industry consolidation, why is that?
The tilapia industry is large: 6 million tonnes are produced per year. In volume terms that’s three times more than salmon and second only to carp. However, the industry is extremely fragmented: hundreds of thousands of small-scale farmers produce a few hundred tonnes each, primarily from ponds. Except for the longstanding industry leader Regal Springs it’s only relatively recently that we have seen a small number of commercial cage farms producing more than 10,000 tonnes per year, such as Yalelo, Tilabras, GeneSeas and Trapia.
If some of these larger producers start to increase investment into applying the latest genetics and nutrition, I think they will begin to consolidate their leading positions due to ever increasing efficiencies and reinvestment back into further advances. Smaller farms could quickly find it impossible to keep up with these more efficient peers, except for some local sales niches. In any commodity industry if one company can produce for half the cost of another it’s going to cause positive disruption and take significant market share. This is the natural maturation of any industry and I think it’s the right direction to go: food security and economic progress come from the most efficient producers thriving and less efficient producers directing their resources elsewhere.
Given individual production sites are limited in capacity and with strong technical knowledge in these areas it would be natural for leading companies to acquire other less efficient farms and implement the same improvements there for faster acquisition-based growth strategy. Poultry production in the USA and Brazil provide a good case study: the industry has consolidated around a few large efficient integrators such as Tyson and Pilgrim’s. Underscoring the importance of this technology advancement, these firms now focus on the higher margin genetics, breeding, nutrition and processing while outsourcing the animal grow-out to smaller farmers. However, it is likely leading tilapia firms will retain primary farming, given the more technical and capital-intensive nature of tilapia farming relative to poultry.
How do the many small pond farms with low overheads factor into this?
Much of the tilapia produced today does come from small pond farms in Asia and Africa that use low cost feed, long grow-out cycles and have very low overheads: essentially only the cost of living for the family that runs the farm. I think we’ll see this segment slow and eventually decline. There are two main factors that limit its expansion potential: capacity and relative pricing. Regarding capacity, there is not a lot of additional water or land is available: we see this in Egypt and China. In Egypt it is now very difficult to receive regulatory approval to produce additional fish, due to limited water supply, and China’s strategy is now to switch to produce lower volumes of speciality products. Regarding price, although these small farms have low overheads, that also means there’s nothing left to cut to improve efficiency. Unlike larger cage farms, small pond farms are able to relatively easily switch to producing other species. As larger farms make tilapia more affordable, I would expect smaller pond farms to switch to producing higher value species or for niche live markets, which is another thing we’re already seeing in China.
Do you see RAS playing a future in tilapia?
Not particularly, except perhaps for some niche markets. The high capital expenditure and operating costs of recirculating aquaculture systems aren’t justified, given the relatively low cost per kilo of the product.