Fishmeal Shortages Sparking M&A as Cargill Eyes Aquaculture

  • World is facing a fifth year of shortages, USDA figures show
  • Prices in top producer Peru have more than doubled since 2004

A fifth year of fishmeal shortages is leading to a rush of mergers and acquisitions as companies including Cargill Inc. seek to meet demand for seafood that’s growing faster than for beef, poultry or pork.

Cargill, the biggest grain trader, will keep expanding in aquaculture as world demand for food protein is seen growing 70 percent by 2050, said Neil Wendover, a global marketing director at its animal nutrition unit. The Minneapolis-based trader, along with Aqua-Spark and others, provided $30 million in funds to fish-feed maker Calysta Inc. this month.

World output of fishmeal, usually made from anchovies, fell short of consumption in nine of the past 10 seasons and a fifth straight annual shortage is expected in this marketing year, the U.S. Department of Agriculture says. Seafood sales will rise 5 percent this year, the biggest gain since at least 2011, data from Euromonitor International showed.

"Aquaculture is one of the fastest-growing areas of food production and Cargill is committed to continue to grow its aquaculture business, both organically and through acquisitions," Wendover said by e-mail. "We will continue to explore opportunities, such as Calysta."

M&A Rush

Cargill’s investment in the company comes six months after the acquisition of salmon-feed maker EWOS Holding AS made the food trader one of the top three aqua-feed producers, according to Rabobank International. An M&A rush in the industry has also seen the $4 billion takeover of salmon-feed supplier Nutreco NV by SHV Holdings NV and Mitsubishi Corp.’s acquisition of salmon farmer Cermaq ASA.

Rising seafood consumption is making fish farming more important. The world is now eating more farmed fish than wild catches, according to the United Nation’s Food and Agriculture Organization in Rome.

With fishmeal production unlikely to meet demand, companies are looking for alternatives, said Mike Velings, a managing partner at Aqua-Spark, a fund investing in aquaculture. Production will be about 300,000 metric tons lower than consumption this season, USDA data showed. Fishmeal prices in top producer Peru have more than tripled since 2001.

"In the next five years, there is actually going to be a structural shortage in the market for fishmeal, so everyone sees a market opportunity in the short term," Velings said.

Unprecedented Wave

Big companies prefer to invest in feed over farming as it tends to grow slightly faster and there’s no risk associated with biological stock, said Gorjan Nikolik, a seafood-industry analyst at Rabobank. Feed-makers are also less exposed to commodity-cost fluctuations.

Producers need to invest to bring technologies to a level at which output can be scaled up at a reasonable cost, Velings said. Calysta should bring its first commercial-scale factory online in 2018, he said, adding that it would probably be in the U.S.

The recent wave of M&A is "unprecedented" but likely to continue, Nikolik said, predicting Chinese companies will join the fray. As more deals become public, more companies and investment funds become interested, he said.

"For every Cargill, and for every SHV, there are probably three or four other similar companies looking at what’s happening in the market," Nikolik said. The only question is “if there are going to be enough good assets for sale."

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