From the tops of our bagels to the centerpieces of our Friday night dinners, one food has forced its way deep into our diets and is showing no signs of slowing down: salmon. As Americans’ waistlines continue to expand, doctors have pushed for fish (in place of meat), specifically salmon, to make up a greater part of the consumer’s daily diet. For this week’s industry spotlight, we’re using our financial fluency floaties to swim upstream to bring you the lowdown on salmon.
Salmon, Shellfish, and Sushi, Oh My…
In terms of the American diet, a recent report by the National Oceanic and Atmospheric Administration estimated that the United States per person yearly consumption of fish and shellfish was 15.5 pounds in 2015. This marks a 6% increase from 2014, when Americans consumed 14.6 pounds per person.
Now to break those numbers down even further, of the 15.5 pounds consumed, roughly 55% was strictly of America’s top three seafood choices: shrimp, salmon, and canned tuna in that order. Of those 15.5 pounds, salmon amounted to exactly 2.876 pounds. The US currently has a population of 326.8 million people, which puts US salmon consumption just under 1 billion pounds per year. That’s a whole lot of sushi rolls. And speaking of sushi, between 2010-2014, sushi consumption in the US grew by 28%, and continues a strong positive trajectory today.
As more people crave the delectable taste and nutritional value of salmon, suppliers of the world’s favorite fish are preparing for the future with technological advancements to keep the industry growing. Norway, one of the world’s top salmon suppliers, exports roughly $8 billion worth of seafood annually, amounting to nearly 8% of the country’s total exports. Being such a lucrative business, companies are willing to spend top-dollar to gain an advantage.
One firm in Norway, Lingalaks, is attempting to use hydro-acoustic technology that listens to salmon activity to determine when the fish have had enough to eat. By listening to the peaks and troughs in noise of its countless salmon farms, the firm is able to more accurately feed its fish and avoid wasting money on extraneous food. The CEO of Lingalaks, Erlend Haugervoll, expects the technology to save them between $900,000 and $1 million per feeding. And in the competitive industry of farmed salmon production, which expects to grow by 9% in the next year, every cost-cutting solution is an important one.
Another company, Stingray, is attempting to fix the issue of the parasitic sea louse and its harmful effects on the salmon we eat. Sea lice, which attach themselves to the fish and eat away at their flesh, can lead to the fish becoming inedible for humans or possibly kill it. Stingray is working on a new technology that roams around the fish without disturbing it while projecting lasers onto the fish’s affected areas. The shots are fatal for the lice, however, fish skin is powerful enough to endure the shots, allowing the salmon to reflect the laser without harm. In a fast growing industry where competitors are racing to capture market share, companies are producing a range of ingenious technologies that allow them to cut costs.
You don’t need a degree in financial fluency to know that plastic in fish is a bad thing. Worsening water pollution and our world’s ever-growing reliance on plastic could have detrimental effects to the seafood industry as a whole. According to the World Economic Forum, 12.7 million metric tons of plastic enter the ocean every year.
They estimate that there could be more plastic than fish in the sea by 2050.
In 2015, researchers studied fish markets in California and Indonesia and found that nearly one in every four fish contained remnants of plastic. Although we have yet to experience the large-scale, negative health effects of plastic consumption in our seafood, a healthy helping of Ziploc bags and six-pack rings certainly won’t do us any good. We must figure out how to reduce our plastic footprint, as marine pollution is already irreparably affecting our oceans and the entire ecosystem that inhabits them.
While rampant pollution is harming our oceans and all the seafood they supply, our manipulation of rivers is also negatively impacting the salmon population. Prime habitats for salmon are being destroyed by humans moving rivers and blocking others in order to make room for hydroelectric power machines and flood control.
Some of this human meddling may be a well-intentioned response to the negative effects of climate change and new environmental challenges, yet massive changes to water flows can affect entire ecosystems by redirecting the flow of nutrients and food availability. Although adult salmon tend to migrate to the seas, they return back to their fresh water roots to lay eggs. Moving rivers and altering water flows has resulted in many salmon being unable to return home to lay eggs, which could cause projected wild salmon growth to stagger.
America’s Trade Roe
Global demand for salmon continues to rise, and as America tests its new protectionist trade policies in the international community, it just might be letting the salmon slip through its fingers and decreasing its terms of trade.
In President Trump’s first major political move, Trump pulled out of the Trans-Pacific Partnership (TPP) in his first day in office. The pact consisted of 12 countries that border the Pacific ocean, which make up nearly 40% of the world’ economic output. The wording of the deal would have cut tariffs and ultimately boosted trade growth between the countries involved. However, Trump made it clear during his campaign that he was against the deal, and his actions in office proved exactly that. Over 90% of the US’s seafood consumption is imported rather than produced domestically, so any rejection of a trade proposal of this scale instantly affects the seafood, and of course, the salmon industry.
Although Trump’s rejection of the TPP will have implicit effects on our future involvement in the multilateral trade deals, it will likely be another country’s action following the breakdown of trade relations that will prove even more worrisome for the US.
In July, Japan, one of 12 members of TPP, and the European Union agreed on a massive trade deal that bears similarities in size to NAFTA, the largest trade deal in the world which has US working with Mexico and Canada. The deal was announced the night before the G-20 summit in Germany, supposedly a slight jab at Trump’s decision to back out of the TPP. Japan’s main objective was to create a trade agreement with the world’s largest economy, the US, rather than the EU. However, once the TPP fell apart, Japan recalculated quickly.
By nature of the countries involved, this deal will have significant ramifications for the U.S. salmon industry. Norway, Ireland, and the United Kingdom are 3 of the top 8 producers of salmon in the world. And by signing an agreement to lower tariffs and boost trade with the EU, Japan has essentially opened its gates to some of the largest salmon producers in the world while the US sits idly by.
The salmon industry is growing exponentially with increased demand and quickly-advancing technology. While we throw more lox on our bagels and roll more raw fish into our sushi than ever before, salmon is increasingly becoming a staple of our daily diets. The economic prospects of the lucrative industry are promising, however, pollution and issues with US trade deals have turned the future of the US salmon industry a bit murky. Dirty oceans could soon make clean, highly sought-after wild salmon an unaffordable delicacy. Regardless, global demand will continue to increase, and farmed salmon is likely to realize significant relative growth over the coming years due to the challenges of providing sustainable, clean, wild seafood. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency.
Social Investing Ideas
Bakkafrost is an up-and-coming salmon producer that is attractive from an investing perspective. Currently their P/E is trading around 11 which is extremely low for an unleveraged, potentially high-growth company. They pay strong cash dividends and project growth to continue at 30% through 2021.
Marine Harvest is the world’s largest producer of salmon based on sheer quantity. Their slaughter volume last year was 380,621 metric tons of salmon according to a study done by Salmon Business. This number nearly outnumbered the next three companies combined.
Although Kerecis Ltd. is a private company, it is still turning heads in the salmon industry. While they do not catch and sell salmon, Kerecis has begun using fish skin to cure wounds and burns. The fish skin acts as a healthier natural option, remarkably preventing increased inflammation and transforming chronic wounds into minor injuries.