(Farm) Fishing for Profits
Jeff Opdyke (April 20, 2011)
I strolled across the wet concrete floor, enveloped in a humid cloud of ocean smells, dressed in business attire and holding a video camera. All the Noryangjin shopkeeps took a moment to examine the oddly out-of-place tourist.
It’s one of my travel habits in Asia … I stroll through wholesale fish markets. For fun. This one, the Noryangjin Fish Market, was in Seoul, South Korea, where I visited earlier this year on a research trip.
I like these venues because they’re a small peek into the local culture that few tourists take time to see. And the collection of sea-critters is often as bizarre as it is educational.
But I have an investor’s rationale as well: I see vast profit potential in fish.
The Emerging Middle Class: Fishing for Better Food
In the West, as jobs evaporate, paychecks shrivel and monetary chieftains sap the value from currencies like the U.S. dollar, it’s hard to believe the world is a wealthier place.
But spend some time in the developing world as I do every year, and you understand why the 21st century belongs to Asia, parts of Africa and Latin America. The middle class is rising in those markets, particularly in Asia. And the people there have increasing amounts of discretionary income, even as most Americans have less.
One of the truisms of rising income is that people with more money pursue more-healthful foods. That means protein. And increasingly that means fish.
Global per-capita fish consumption hit a historic high of 17 kilos in 2008, according to the United Nations Food and Agriculture Organization. For some perspective, per-capita consumption in the 1960s was less than 10 kilos. It has risen every decade since.
Today, fish represents about 16% of the global population’s annual protein intake, and it provides more than 1.5 billion people with as much as 20% of their animal-protein consumption.
Those trends are clearly headed higher.
Each year through 2030, roughly 30 million people will join the middle class. That’s more than half a billion new people with the money to afford better protein in their diet. And in many parts of the developing world, fish happens to be more affordable than beef, lamb and other higher-priced proteins. That makes fish all the more-relevant in the parts of Asia where “middle class” defines people earning as little as $10 a day.
But where will all this fish come from? The opportunity for investors lies in the answer to that question.
Farming for Profits in Fish Farms
The quantity of the world’s wild-caught fish – about 90 million metric tons annually – has barely budged since 2001, according to UN statistics. That reflects decades of overfishing running headlong into aggressive, multi-year governmental efforts to restore the depleted stocks through protective quotas.
Instead, the fish the world consumes is increasingly coming from aquaculture – basically, fish farms.
Those farms now supply about 53 million metric tons of fish annually, up from about 7 million metric tons in 1980. That growth is projected to continue at a rate of between 6% and 8% a year, ultimately surpassing wild-caught fish as the dominant source of fish-protein sometime in the next seven years or so.
That’s the kind of trend you want to hook into as an investor.
Owning equity in a fish farm lets you participate in the ongoing expansion of the world’s middle class and the growing desire for better food.
China has schools of fish farms all over the country. But I would much rather be in the heart of the industry, in Norway, where you find many of the largest, multinational fish-farming companies.
Outside of Asia, Norway is the most significant fish-farming country in the world. And investing there gives you exposure to the Norwegian krone, one of my three preferred currencies (along with the Chinese yuan and the Singapore dollar).
The Norwegian fish-farming stock I’d point you to is Cermaq (OSL:CEQ). It trades in Oslo under the symbol CEQ. (You can trade Norway directly in the U.S. through EverTrade, Fidelity, and Schwab.)
Cermaq owns about 6% of the farmed-fish market globally, producing mainly salmon in Norway, Canada and Chile. The company also controls about 35% of the global market for fish feed, giving us an additional tie to the growing demand for fish protein.
The company in 2010 reported its best year ever. Demand for salmon has surged in recent years, even as supply has stagnated – the result being that salmon prices are rising globally.
The operations in Chile will drive profits even higher this year. Chile struggled with a disease outbreak a few years ago that reduced supply dramatically. The outbreak has passed and Cermaq’s operations are expected to return to normal this year.
Cermaq shares trade at about 100 krone (US$18.62) and fetch just seven times expected earnings. The stock also plates up a nice dividend yield in the 5% range.
Ultimately, the world is hungrier for fish. Cermaq benefits from that reality.
Until next time, keep a global view …
Jeff D. Opdyke
Editor, Emerging Market Strategist
Blog: http://globetrotter.sovereignsociety.com/
http://sovereign-investor.com/2011/04/20/farm-fishing-for-profits/
No comments:
Post a Comment