Several supplier companies are taking on the job of obtaining financing for land-based farming. It can be punishing.
It was a boom. Salmon prices were the highest in six years. Feed companies were fighting tooth and claw to be allowed to deliver to the farmers. One of the tools they used was feed credits. Increasingly longer payment periods for the settlement – with a mortgage on the fish farming companies’ balance sheets. They eventually became major creditors.
But during 2001, the price of salmon began to weaken. The next two years were catastrophically weak. Salmon prices tanked. Heavily mortgaged farmers defaulted on their debt. Some of them were taken over by the creditors.
“We will not be a bank for the farmers,” said the then EWOS manager Kjell Bjordal firmly.
EWOS tightened up its feed credits sharply. But the parent company Cermaq had already, as a major creditor, actually taken care of customers Follalaks and Aquascot. The competitor BioMar was in the same situation, and took over the majority of shares in Sjøtroll.
It was not out of a desire to get into fish farming. It was primarily a way to secure their receivables.
Boiling over
Two decades later and the aquaculture industry is red hot again. But in the absence of opportunities for organic growth, many players are choosing to take the salmon ashore – a business model that is significantly more capital-intensive than aquaculture. There is no shortage of projects. SalmonBusiness has mapped 100 companies that aim for a total salmon production of 2.5 million tonnes.
The bottleneck is capital. These companies have a huge capital requirement. Due to the high financial and biological risk in farming on land, the banks have largely refused. Thus, the players, as for cod farming 10-15 years ago, must look for money in the equity market.
Another option is to get financing from suppliers. The bottleneck in financing stimulates the suppliers of vessels, pumps and hoses to inject money. Skretting owner Nutreco is already on the owner side of several land-based fish farming companies. AquaMaof is heavily involved in several projects. As is AKVA group.
Yesterday it was announced that AKVA group is giving a convertible loan of five million dollars to AquaCon, which will build three fish farms in the USA. The company has already used the same model to part-finance a fish farm in Shanghai. At the same time, AKVA group receives financial support from a new strategic shareholder, Israel Corp., which will help finance AquaCon and other similar projects.
AKVA group will be a bank for the farmers, in the same way as Nutreco and AquaMaof.
Credit risk
Former Nutreco CEO Knut Nesse is at the helm of the AKVA group. No one need doubt his competence handling feed credits from his time in the Netherlands. But he definitely does not have an equally large credit department with his new employer.
Producing technologically advanced and profitable land-based fish farms has proven to be very demanding. In addition to technological risk, AKVA group now also assumes credit risk.
The fact that AKVA group will contribute financing will undoubtedly attract more orders. At the same time, there is reason to question whether the company has sufficient expertise in this field – and the need to inflate its own balance sheet.
For there is no doubt that the boom in land-based salmon farms may cool down significantly from the scorching levels we have seen in the last two years. We have already been served the foretaste at the stock market collapse in this segment led by market leader Atlantic Sapphire and Skretting customer Proximar Seafood. Creditors should think twice – if they do not also want to become farmers.
