Aquaculture — an investment opportunity

The CEO and managing partner of a US-based private equity fund believes that food and water, not oil, present lucrative opportunities for investors.

            “Twenty-five years from now people are going to be fighting not over oil, but food and

water,” Robert Orr, CEO and managing partner of Cuna del Mar LP, told the audience at the Aquaculture Association of Nova Scotia’s Sea Farmer’s conference in January.

            He noted that California’s ongoing drought is an example of the importance of water and alternative food supplies.

            He said that given current growth rates in demand, the market will be 211 million tonnes of fish by 2030. “With the supply of wild-caught fish stagnant, any future increase in world fish consumption will need to be supplied by aquaculture. In a resource-constrained world aquaculture is the most attractive option for expanding the animal protein supply. Looking at 2030, it’s not far away to fill food gap.”

Open-ocean farming potential

            To meet the challenge, Orr pointed to open-ocean farming, a venture that industry innovator Norway is encouraging. “The answer is open-ocean farming. Norway is not going to have enough shoreline [for needed expansion]. And looking at site costs in Norway, the future is in open-ocean farming. In Norway it will cost $3-million-plus for a fishing site, if you can get one. But go offshore and the government will give you a site for $150,000.”

            With this as a guide, Orr said, “Cuna del Mar is investing in a portfolio of companies to address the challenges and technology for not only moving offshore, but into open ocean” to utilize that 71% of the planet.

            Orr, who has an entrepreneurial background, describes Cuna del Mar as “a family office fund with a long-term view.” “We don’t use the typical private equity focus,” he said. To illustrate that, he said the fund has a 50-year focus, which surprised the audience. He said he too thought that was long-range, until he met the Duke of Westminster’s investment team. His Grace’s team – the Duke is invested in aquaculture – operates with a 300-year focus. (The Duke is Britain’s fourth richest person with a property portfolio worth in excess of £12.5 billion.)

Investments

            Beyond the technology play, Cuna del Mar is also developing commercial applications for new species. One of Cuna’s investments is in Open Blue, the largest open-ocean farm in the western hemisphere. Open Blue is working to revive the Cobia. Cobia is attractive for its speedy growth (females grow from egg to five kilos in a year), health benefits (it has three times the Omega content of salmon) and versatility (its use ranges from sushi to fish and chips). They’re also working with Earth Ocean Farms and a local university to re-establish a fishery for Totoaba, an indigenous, endangered species in the Sea of Cortez. The Totoaba fishery had been wiped out because of a strong black market, which saw people pay $3,000/kilo, for the animal’s swim bladder.

            Another longer-range play is Rose Canyon Fisheries. The goal is to grow yellow tail and sea bass in federal waters off San Diego.

            Part of that investment is almost a mission to “prove we can meet demand for safe, high- quality seafood that respect oceans, using science and technological innovation to create environmentally sustainable fisheries.”

            Orr said, “People ask why pick California? We did this because it has the toughest regulatory regime on the planet. We did it to prove it can be done anywhere.” The regulatory process involves working with 20 federal and state agencies, like the EPA, Army Corps of Engineers, California Department of Fish and Game, California Coastal Commission, National Oceanic and Atmospheric Administration and others to get approvals

            “We’re trying to create a beachhead others can follow. It’s been more than two years and we’ll probably spend over $2 million in analysis and PR trying to get there.”

            Perseverance is paying off. With a second public review process completed, Orr said the EPA received over 100 letters concerning the project. “Over half were positive. They were from NGOs, including the Nature Conservatory and Port of San Diego (which now has an aquaculture positive process as part of their plan for growth). The world is moving and we need to move faster if we want to succeed.”

            Concluding his talk on a tough-love note, Orr said farmers have to realize that to draw investment, “scale matters.” Farmers need to start thinking how to achieve a scale that is attractive to investors. Just as there are a limited number of people ready to invest in the sector, those investors are challenged to find investment-worthy companies. “As someone who has built companies and been a coach for other companies, I know capital follows good ideas and the people who can execute them. That’s the essence of capital. You can’t be whining about lack of capital, instead focus on getting your business to a state of worthiness.”

            He continued that after scale was the issue of leadership. “Eight years ago a federal paper on Canadian competitiveness stated the biggest gap or challenge in building new companies and the economy is visionary leadership. We’re fantastic in talking about innovation, but poor in executing it. If you’re thinking like everybody else you’re not likely to move forward. See, think, act differently.”

            His final observation was the failure to develop a brand and articulate how you create value for the customer. “The secret ingredient is starting with the customer and working back to create value for the customer. If you don’t create value you don’t deserve to be in business.”

— Allan Lynch